Canadian Dollar Hits New 30 Year High (page 2 of 2)

Tomorrow, we have UK consumer prices due for release. After dropping 0.6 per cent on a monthly basis in July, the rise in oil and drop in the sterling is expected to drive consumer prices higher.

Canadian Dollar Hits New 30 Year High

The Canadian dollar hit a new 30 year high today on the back of stronger economic data and record oil prices.

Foreign purchases of Canadian securities were expected to drop 4.5 billion in the month of July, but instead, it rose for the first time in three months by 1.5 billion.

Demand for Canadian equities was very strong, which may suggest that foreign investors expect the Canadian economy to remain resilient in the face of slower US growth. If oil prices extend their rise that may be the case as the profits of Canadian resource companies continue to grow.

The Australian and New Zealand dollars on the other hand are weaker despite a much stronger than expected service sector PMI report in New Zealand. This is due to the fact that the US dollar has strengthened on the speculation that the Fed will disappoint.

Euro: Waiting for Direction

The euro is hovering not far from its record highs as it waits for direction from the US Federal Reserve. The German ZEW survey is due out tomorrow and we expect a sharp drop in business confidence as the problems in the credit markets drive borrowing costs higher.

As a major exporter, Germany is especially vulnerable to a global slowdown. Although this will probably weigh on the euro the impact should be limited as the real action in the currency pair may not come until 2:15pm EST, when the Federal Reserve makes their monetary policy decision.

If the Fed only reduces rates by 25bp, we may see a near term top in the EUR/USD. We are also expecting Swiss industrial production. The SNB was surprisingly hawkish last week and the market expects the numbers to confirm their rosy economic outlook.

Bank of Japan Not Expected to Change Interest Rates

Carry trades have come under pressure ahead of the FOMC rate decision. This has nothing to do with Japanese data since none was released overnight.

The Bank of Japan will be announcing their interest rate decision this evening, but we do not expect a reaction in the currency market since financial market turmoil and political uncertainty will prevent the BoJ from lifting interest rates.

Instead, we expect carry trades to continue to move in lockstep with the Dow tomorrow in reaction to the Fed's interest rate decision.