For some time now the Canadian dollar, colloquially
known as the “Loonie” because the Canadian dollar coin features a picture of
the common loon, a bird that is indigenous to Canada, has been losing value.
Canadian interest rates are at an historic low level of 1%, something that is
very welcome to Canadian mortgage holders.
Now there are indications that the factors that have
been contributing to the lowering of the Loonie are close to being fully priced
in. This means that it might be time to start looking at the possibility of
trading a rise in the Canadian unit.
As can be seen from the chart above, the Canadian against
the Aussie dollar could be starting a downtrend. Because of the way the pair is designated, this would mean a lowering of the Aussie and a relative strengthening of the Loonie.
As we know, lower highs and
lower lows are indicative of such. Both of these countries are heavily involved
in the production of hard commodities. Each of them was more successful than
other developed economies in avoiding the worst effects of the recent Global
Financial Crisis, which is still working its way out of the system in the USA
and Europe.
And both the Aussie and the Loonie are heavily
involved in the carry trade, where investors borrow money in low interest rate jurisdictions
and effectively lend it out in those countries where they will be paid a higher
rate, allowing them to count the difference as profit.
Interest rate
and other announcements this week
Apart from the Non-farm payrolls data in the USA during
the coming week, of serious import to currency traders will be the rate
decisions and accompanying remarks from the central banks of Europe, Australia
and Canada. No changes are expected in Australia or Canada (but see above),
while as far as the ECB is concerned all participants wait with bated breath to see if Mario Draghi
and his colleagues will deliver on their oft repeated promises (threats?) to
carry out measures that will have the effect of increasing inflation in the
Euro zone and, thereby, tending to decrease the value of the Euro.
The markets have been expecting something of
this nature since last month’s press conference, when the rhetoric was on the
side of considerable easing to come in the Eurozone, and the Single Currency
has been softening. If it transpires this week that the measures announced do
not go far enough to fulfil those expectations, the direction of the Euro will
once again be to the upside.
No comments:
Post a Comment