Sunday, October 18, 2009
downturn in the labor market
Meanwhile, Prime Minister Stephen Harper said that the recovery remains “extremely fragile” and expects the downturn in the labor market to weigh on economic activity going forward, and the cautious outlook held by policy makers may continue to hamper long-term expectations for higher interest rates in Canada as the BoC pledges to hold borrowing costs at the record-low going into the following year. At the same time, Governor Carney continued to see a risk for a slower recovery following the marked appreciation in the exchange rate, and said that the rise may become an increased concern “if the currency appears to move away from fundamentals.” Nevertheless, the central bank head stated that it will be “absolutely essential”
The Canadian dollar weakened
The Canadian dollar weakened against the greenback, with the exchange rate pushing above the 50-Day moving average for the first time since July to reach a fresh monthly high of 1.0984, and the USD/CAD is likely to hold its broad range over the following week as investors weigh the outlook for future policy. The Bank of Canada announced it will extend the C$ 125B mortgage purchase program to “at least the end of January 2010” earlier this week in order to strengthen the banking sector, but said that two of the three emergency programs will be concluded at the end of October as the central bank sees “lower market-based funding costs and the lack of coverage in recent auctions for temporary liquidity facilities.” Moreover, Governor Mark Carney warned businesses will need further “restructuring” as he expects trade conditions to remain subdued over the next 18 months, and went onto say that it will take some time before “we are really going to see true growth, self-sustaining private sector growth” as the government stimulus begins to taper off.
European central bank
European central bank announcements may make for an interesting run of days across key forex pairs. It is near-impossible to predict how markets to react to any of these important announcements, and as such traders should be sure to control risk on open US Dollar positions. We have seen early signs of a sustained US Dollar reversal. Yet very recent price action has shown markets were not yet willing to push the Greenback materially higher versus key counterparts. The coming week may prove especially important to overall trends in major US Dollar pairs
US Dollar traders
Outside of the ISM report, forex traders should keep a look out for a number of important global central bank interest rate decisions. Uncertainty surrounding Australian, British, and European central bank announcements may make for an interesting run of days across key forex pairs. It is near-impossible to predict how markets to react to any of these important announcements, and as such traders should be sure to control risk on open US Dollar positions.
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