The Dollar Is Heavy Ahead Of What Is Expected To Be A Dovish Fed

Canadian Dollar:  The Bank of Canada announced it would reduce the amount of government bonds it was purchasing and brought forward to the second half of next year when it imagines the spare economic capacity would be absorbed.  Yet, the Canadian dollar was not really rewarded and finished the week almost 0.3% higher against the US dollar, a function of its pre-weekend advance. The US dollar has been finding steady bids in the CAD1.2460-CAD1.2470 area.  The combination of lower implied volatility and a smaller skew in the risk-reversal (favoring the US dollar) is consistent with interest in selling greenback calls.  For the past five weeks or so, the US dollar has gone virtually sideways as reflected by the convergence of the five and 20-day moving averages (~CAD1.2530-CAD1.2550) (FXC).  

Australian Dollar:  For the past six sessions, the Aussie has been alternating between gains and losses and over this span net-net it is virtually flat. In the first half of April, it traded mostly in a $0.7585-$0.7675 range.  Now it is in a $0.7690-$0.7800 range.  It did spike to about $0.7825 on April 20, which was the (61.8%) retracement objective of the decline since the peak in late February a little above $0.8000.  The momentum indicators are mixed.  The MACD is gradually rising while the Slow Stochastic has turned lower.  A break of the $0.7670 area, which houses the 20-day moving average and (50%) retracement objective of this month's advance would weaken the technical tone.  Next week Australia reports Q1 CPI early on April 28 in Canberra, and the underlying measures are expected to be stable, but the import/export prices, the following day, are more noteworthy.  Australia has a positive terms-of-trade shock.  Consider that its index of import prices fell every quarter last year and is expected to have fallen again in Q1. The index of export prices fell in the middle two quarters of 2020 but rose by 5.5% in Q4 20 and is expected to have risen 9% in Q1 21 (FXA).

View single page >> |

Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

more
How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.