GFX Morning FX Commentary October 4th, 2012

Good Morning,

Today’s expected range for the Canadian Dollar against the US Dollar is .9820-.9900

Today’s expected range for the Canadian Dollar against the Euro is 1.2740-1.2840

Today’s expected range for the Canadian Dollar against Sterling is 1.5850-1.5950

The US Dollar is marginally weaker this morning as the Euro and Sterling both rallied ahead of their respective central bank announcements on interest rates. As I write, the Bank of England announced that they were holding interest rates steady at 0.25% and not making any changes to their Quantative Easing program. It is interesting to see the different views that central bankers take, in the UK the Bank of England continues to flood the economy with cheap cash even as inflation rises above their target rates. Here in Canada we have seen the Bank of Canada ever the inflation fighter, if inflation was to rinse then interest rate hikes would follow right behind to keep inflation in check, I think this highlights the difference between the Bank of England and the Bank of Canada.

Late r this morning the European Central Bank will announce their interest rate strategy and after cutting rates 0.25% last month the market is expecting the ECB to keep interest rates at present levels of 0.75%. The markets will look to Governor Draghi’s press conference later in the morning for guidance on the Euro economy and in particular an answer to the will they or won’t they apply for a bailout Spanish question. I think markets will also look for further explanations on Draghi’s bond buying program, last month to protect the Euro from a free fall Draghi got very tough and came out and said that he will protect the Euro at all cost and announced an unlimited bond buying program to protect the Euro, to date the rhetoric has worked for him but there are no indications that the ECB has followed through and actually bought any bonds. I think this could be a very interesting press conference.

The Canadian Dollar is basically unchanged from yesterday’s close as the market awaits the ECB press conference. Of interest to me yesterday was the fact that price of oil dropped over $4 yesterday and the Loonie hardly moved. This to me highlights that the fact that the Canadian Dollar is not correlated to the price of oil at the  moment but is focusing more on equity markets, when equities retreat USD.CAD rises(Loonie gets weaker) and when equities rally USD.CAD falls and the Loonie strengthens. If you are holding off doing a trade for a moment keep your eyes on trends in the equity markets, it should give you a good idea of which way the Loonie should move.

For today barring any surprises from the ECB we should see USD.CAD continue to trade back in forth in tight ranges, markets should quiet down in the afternoon as  I think the market will setup for tomorrow’s US and Canadian employment reports.

Have a great day

Mike

GFX Morning Currency Rates
Thursday October 04, 2012
Currencies	7:00am Today's Opening				Yesterday's Opening
USD/CAD		0.9858			0.9863
CAD/USD		1.0144			1.0139
EUR/USD		1.2947			1.2915
EUR/CAD		1.2762			1.2739
STG/CAD		1.5882			1.5897
AUD/CAD		1.0048			1.0053
CAD/JPY		79.65			79.27
CAD/CHF		0.9488			0.9444
CAD/HKD		7.8588			7.8571
CAD/CNY		6.4265			6.4127
CAD/MXN		12.97			13.0704
Commodities
Gold		$1,790			$1,782
OIL		$88.77			$91.44
Option Volatility
Canada
O/N		9.51%			9.57%
1 Week		7.56%			7.21%
1 Month		7.31%			7.11%