I’ve been pounding the desk as of late telling anyone who will listen that the Loonie is the place to be. Hopefully, reader, you’ve taken that advice. This morning, the Loonie is higher as inflation in Canada came in higher than expected. Canadian CPI came in at 2.1% vs. an expectation of 1.7%, which may prompt the Bank of Canada to move sooner on rates than their June timetable.
On a morning devoid of economic figures except for Canada, the other news steering the market is Greece’s “race against time”. The Euro is lower this morning as fears of a Greek bond default have heightened.
In the currencies:
Aussie (AUD): The Aussie is mixed this morning in a case of “less bad is good”. While one would expect that today would be a risk-aversion kind of day, the truth of the matter is there really isn’t anything looking good right now, with the exception of the Loonie.
Kiwi (NZD): The Kiwi is down across the board, upholding the familiar risk aversion themes that the market has come to love. New Zealand is not quite Australia, so even though they have higher interest rates than most other currencies, the Kiwi will be the currency that is most sensitive to risk.
Loonie (CAD): The Loonie has been on fire as of late and could reach parity with USD by the end of today’s trading. The only thing that could prevent this at this point is overall risk aversion. Oil prices have drifted lower and the market is preparing for the expectation that a Canadian rate hike will be coming in the near future. The Loonie is up across the board.
Euro (EUR): The Euro could be in trouble. I briefly mentioned Greece’s “race against time” to secure financing to repay debt, but as I wrote yesterday, Germany is playing hard-ball. The Euro zone is split with regard to how Greece will be bailed out. Without German compliance, Greece will be forced to accept much higher interest rates as fear that they won’t be able to re-pay debt is running rampant. The marketplace wants assurances from Germany that they will help Greece if need be, but as of right now Germany appears to be dead set against this. Stay tuned for how this plays out. My guess is that Germany will eventually cave in, though the Euro could trade lower before that happens.
Pound (GBP): The ratings agencies and Jim Rogers, one of the all-time greats in currency trading, are putting pressure on the Pound this morning. Concerns over the UK budget deficit are starting to swell, and the possibility of changes in government at the next election all contribute to the selling.
Dollar (USD): The dollar is higher today against all but the Loonie as the flight to safety trade is in effect. Today is “triple witching” in the US market, with futures and options expiry taking place. This sometimes can mean that there is unusual market activity, however today is starting out as expected.
Yen (JPY): The Yen is lower this morning against all but the Euro and Pound as the Japanese economy is showing early signs of recovery. This tends to push bond yields higher as prices fall as demand for the safety of government bonds decreases.
So today is a good day if you own Loonies, not so much if you’re in Euros. Expect the drama to continue in the Euro zone for some time. By not being complicit, Germany can continue to benefit from a weaker Euro as this makes their exports more attractive abroad. I expect the Germans to eventually at least verbally “guarantee” to help Greece, though the help may never be needed if they had just said yes in the first place.
Have a great weekend!
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