Canadian Dollar Surges on GDP data
01-03-2011
The dollar index was hit hard on Monday, as the Pound, Euro, and Canadian Dollar posted significant gains, while the Swiss Franc, Yen, and Australian dollar dropped lightly.
Equity markets have rallied over the past two days, as oil prices have stabilized. Nonetheless, oil prices remain at multi-year highs, and are roughly 15% higher than they were before the Libya crisis began. Unlike the spike connected with Egypt which completely reversed over the following weeks, prices are sitting on solid ground at these new levels, suggesting further gains are extremely likely. The potential for spreading unrest in the Middle East remains a significant concern, and some have even speculated that it could reach Saudi Arabia, the backbone of US oil supplies..
Canadian GDP data released yesterday showed the economy expanding at a gentle .5%, better than the .3% expected by analysts, and an improvement over last quarter's .2%. The news was the spark to send the USDCAD tumbling, as the pair fell to .9720. Prices had already moved down to multi-year lows on Friday, but without significant momentum. Rising oil prices generally help the CAD, as a major oil exporter.
Pending Home Sales data in the US showed continued weakness in the housing sector, a soar spot in the road to recovery.
The Euro came within 15 pips of its Feb 1st high, as the single currency continues to rise, buoyed by speculation of interest rate raises. The Pound rallied strongly, briefly tagging the November high of 1.6298, which was the highest price for sterling in 14-months.
European banking officials have made clear they are far more concerned with inflation than growth, while US officials have focused primarily on economic recovery and unemployment. The divergent approaches have set the stage for interest rates that favor the Pound and Euro over the US dollar, sending the dollar lower.
Australia's central bank, the RBA held interest rates at 4.75%, citing an ease in inflationary pressures.
An unusually heavy economic calendar will greet currency traders on Tuesday, potentially with broad impact.
GDP data is due from Switzerland on Tuesday, and from Australia late Tuesday night. Several European countries will release unemployment data. The Bank of Canada will issue its interest rate decision; analysts expect the rate to remain at 1%. Manufacturing data from the UK, along with inflation hearings may provide the necessary jolt to push prices to new 14-month highs.
In the US, Fed Chairman will be testifying to Congress in a semi-annual hearing, and PMI data is due from the US.
