GFX Morning FX Commentary, June 14th, 2012

Good Morning,

Today’s expected range for the Canadian Dollar against the US Dollar is 1.0200-1.0300

Today’s expected range for the Canadian Dollar against the Euro is 1.2880-1.3000

Today’s expected range for the Canadian Dollar against Sterling is 1.5910-1.6025

The US Dollar is marginally weaker this morning which is a bit surprising to me as yesterday afternoon saw two rating agencies downgrade Spanish debt as the yield that investors demand to hold Spanish debt rose to 7.0%. Euro actually jumped a bit higher last night and I think it is the expectation that if today’s inflation number is benign  then there will be room for the US Federal Reserve Bank to add further stimulus to the economy. The Euro also may be getting benefit from the Swiss National Bank as it defends the Swiss Franc by intervening in the FX markets to buy Euro. You may recall that a few months back the Swiss Franc was getting very strong which was hurting their economy (now that sounds familiar) and the central bank decided that they would set a floor for EURO.CHF and purchase an unlimited amount of Euro at 1.2000 to stop the Franc from getting stronger. EURO.CHF is now at 1.2005 and has been for several days now so this fact may be giving the Euro some strength across other currencies. Next up for the Euro will be the Greek elections on Sunday so this situation will remain volatile.

Not much to say about the Canadian Dollar, it continues to trade within the 1.0200-1.0300 trading and is being influenced by outside factors. Today the Loonie will follow the US inflation report and if the number comes in as expected then we should remain in the current trading range. With the upcoming uncertainty over the Greek election results and further turmoil in Europe I think it is wise to make sure you have locked in some of your forward exposure at current levels, markets can become very volatile and you don’t want to be caught out having it cost you thousands of dollars.

As mentioned the currency markets will be dominated by the US CPI announcement today and we are expecting prices to actually fall, the year over year rate last time out was 2.3%, this time we are expecting a yearly inflation rate of 1.8%. If markets think that this strong report will free up room for the Federal Reserve to add stimulus then equity markets will jump higher and USD.CAD will drop off. It is interesting that if the Fed is going to add stimulus I think they pretty much have to do it in the newt 1-2 months, the Fed does not have a meeting in August and unless an emergency situation develops I don’t think the Fed would make any announcements so close to a US Presidential election in November.

Have a great day

Mike

GFX Morning Currency Rates
Thursday June 14, 2012
Currencies	7:00am Today's Opening				Yesterday's Opening
USD/CAD		1.0258			1.0257
CAD/USD		0.9748			0.9749
EUR/USD		1.258			1.2553
EUR/CAD		1.2906			1.2857
STG/CAD		1.5933			1.5966
AUD/CAD		1.0215			1.0227
CAD/JPY		77.26			77.62
CAD/CHF		0.9298			0.9336
CAD/HKD		7.5578			7.5569
CAD/CNY		6.2065			6.2053
CAD/MXN		13.6839			13.6259
Commodities
Gold		$1,621			$1,610
OIL		$82.78			$83.16
Option Volatility
Canada
O/N		14.63%			15.84%
1 Week		12.81%			12.67%
1 Month		10.78%			10.69%

Today's Economic Calendar

USA
Consumer Price Index for May (08:30)
Comsumer PRice Index YoY (08:30)

CANADA
New Housing Price Index (08:30)
Bank of Canada publishes Financial
Systems Review (14:30)