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Not So Fast, Canada!
By Mike Conlon | April 9, 2010
I admit it. My rose-colored glasses when it comes to the Loonie have perhaps soured me on the Kiwi and for that I am sorry. I have moved the Loonie higher in my “risk totem-pole” as my belief is that prospects for growth are better in Canada than in New Zealand.
Well today the market is saying otherwise. Canadian job growth came in less-than expected, prompting those in my camp to run back to the Kiwi.
In other news across the pond, both the Euro and the Pound are finding support after ECB President Trichet re-assured the market on Greece, and UK PPI figures came in higher than expected prompting inflation fears.
In general, the market has been positive toward risk-appetite for some time, though it is always interesting to see that one day of losses can wipe out two days of gains, etc.
In the forex market:
Aussie (AUD): The Aussie is higher on risk appetite, as well as a report that Australia’s jobs boom may stoke inflation sooner than had been predicted. The jobless rate now stands at 5.3%, which may indicate a shortage of skilled workers which would in turn cause prices for said workers to increase. Basic supply and demand. Wage growth is one of the top indicators of inflation and the RBA has been vigilant in attempting to stave off inflation so more rate hikes may be coming.
Loonie (CAD): Loonie, I won’t quit you! I’m leaving the Loonie ranked higher than the Kiwi despite what the market is saying today. Employment figures came in this morning and Canada “only” added 17.9K jobs vs. an expectation of 25K, thus leaving the unemployment rate at 8.2%. While this rate is still high by world standards, the Canadian economy is poised to show growth and I still think that outside of Australia, Canada will be the next to raise rates.
Kiwi (NZD): The Kiwi is the best performer this morning, punishing those who abandoned it for the Loonie like only a jilted lover could. The main reason behind this is the interest rate differential, with the Kiwi currently yielding 2.5% as opposed to .25% for the Loonie, making it a better destination for carry trades RIGHT NOW. However, because the forex market is forward looking, any further signs of inflation in Canada could change this sentiment. Today, however, the Kiwi is king.
Euro (EUR): The Euro is going from “zero to hero” overnight as ECB President Trichet re-assured the marketplace that Greece would not default, claiming it is “not an issue”. In addition, signs are that economic recovery may be taking place as the German account surplus came in better than expected as exports were higher. Also, French manufacturing production ticked higher, as both have undoubtedly gained from recent Euro weakness.
Pound (GBP): The Pound is higher as UK PPI figures came in hotter than expected, showing signs that economic recovery may be stoking inflation. Much of the recent Pound weakness has been from uncertainty over elections and concern over the UK debt. The pound has had 10 straight days of gains vs. the Euro.
Dollar (USD): The Dollar is giving back some of its recent gains as risk appetite is on the palate of investors. The Dollar is back above parity vs. the Loonie after the Canadian jobs report. No major news for USD today.
Yen (JPY): No demand for the Yen today is driving it lower as it is game on for carry trades and world stock markets and commodities are higher. As the primary funding currency for yield-seeking carry traders, world market gains are usually Japanese yen losses. And that’s just fine by the BOJ and Japanese government.
Sometimes it is interesting to see how the forex market can shift moods back and forth so easily. One day you are afraid that a major country may default on its debt thereby causing structural complications for one of the world’s major currencies; and the next day its pizza and ice cream because assurances are made and some good economic figures provide a respite from fear.
And that’s the beauty of the forex market. By understanding that forex trading is relational, one can benefit from short to medium term trading in addition to longer term time-frames.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
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