GFX Morning FX Commentary July 17th, 2013

Good Morning,

Today’s expected range for the Canadian Dollar against the US Dollar is 1.0350-1.0450

Today’s expected range for the Canadian Dollar against the Euro is 1.3620-1.3720

Today’s expected range for the Canadian Dollar against Sterling is 1.5780 to 1.5880

The US Dollar is mostly unchanged from last nights close to start the trading day. The noticeable exception is Sterling which is higher by over 100 points on the release of the Bank of England policy meeting minutes which showed that all committee members voted unanimously not to increase the stimulus program, this is the first vote under Carney and it is interesting to see that he was able to get all members on the same page. The previous vote under former Governor King had two members voting for an increase in stimulus so I think the markets liked the fact that Carney was able to get some certainty to the BOE policy, GBP.USD jumped from 1.5080 to a high of 1.5220. Sterling has made an impressive jump from last week’s low below 1.4800 but I still favour a weaker Pound going forward but right now it is on a bit of a roll so it may go higher in the short-term.

The Canadian Dollar is for the most part unchanged in overnight trading, it did lose a little ground as it continues to settle in around the 1.0400 level. Canadian Dollar trading will of course be dominated today by the interest rate policy announcement from the Bank of Canada, this will be new Governor Stephen Poloz’s first announcement so currency traders will be paying a little closer attention to the tone of the announcement as well as to the content of the announcement. The market is not expecting any change to the key Bank of Canada interest rate but they will be looking to see what the indication is for interest rate hikes in the near future. Here are some scenarios and what I think could happen;

1.  No change to the interest rate but a statement stating that the economy is slowing and rate hikes will not happens for some time yet (very similar to the Bernanke statement last week). This would be a big change from present policy and such a move would drive USD.CAD immediately back towards 1.0400.

2.  No change to interest rate policy and keep the neutral stance on future hikes. This is what I think the market is expecting and if we see this come to pass then I think USD.CAD will weaken off slightly towards 1.0350 where it will settle in.

3.  No change to interest rate policy but indicate the economy is strong and interest rates will rise sooner than later. Such a tone will catch the market by surprise and drive USD.CAD towards 1.0300  very quickly.

Whatever happens at 10:00 I think we will have a volatile market so make sure you have your orders in early to take advantage of it. We also today get testimony to Congress from US Federal Reserve Chairman Ben Bernanke on the state of the economy, this could add volatility to the currency markets at any time today if he drops any surprises.

I will of course send out a quick summary of the Bank’s announcement shortly after 9:00 this morning.

Have a great day

Mike

GFX Morning Currency Rates
Currencies	7:00am Today's Opening				Yesterday's Opening
USD/CAD		1.0388			1.0411
CAD/USD		0.9626			0.9605
EUR/USD		1.3145			1.3112
EUR/CAD		1.3658			1.3653
STG/CAD		1.5658			1.5732
AUD/CAD		0.9566			0.9601
CAD/JPY		95.97			95.4
CAD/CHF		0.9042			0.9054
CAD/HKD		7.4658			7.4486
CAD/CNY		5.9045			5.89
Commodities
Gold		$1,286.38			$1,287.36
OIL		$105.43			$106.48
US DOLLAR INDEX
P.CLOSE		82.62			83.2
OPEN		82.7			82.92
US 10YR YIELD		2.55%			2.53%