Other Dollars get a boost from Gold

The loonie palpitations have been rather limited so far this week. The news that Berlusconi would resign after approval of austerity measures has the currency attempting to break out of its tired weekly range. Market concern that Europe’s sovereign-debt turmoil is worsening has discouraged the demand for higher-yielding assets to date. Growth and interest rate sensitive currencies continue to find fault with any sensational headlines out of Europe. Canadian order books are also aiding this tight range, with sovereign sellers on top and corporate bids below. The weekly flow data this week is showing that the loonie demand has retreated, an indication that the currency valuation may be a tad rich for interested parties at these particular levels, especially when it was announced that Berlusconi had not won an outright majority.

In this morning’s session the currency happened to pare some of the losses on the back of a report showing Canadian housing starts were higher last month than expected (+208k vs. +198k). Volatility (price swings) in the currency out right is little changed this week, one week after reaching the lowest level in more than a month (-6bp to +12.84%). The loonie has dropped -4.6% this year and is the worst performer among the G10. The greenback is down -2.5%.

Carney’s comments last week are very transparent. He is concerned about sustainable growth and the market will have to be cautious in trying to push the currency higher at speed. With corporate buyers lurking below, dealers will have to focus on the risk reward of owning the loonie at these levels (1.0110)

Aussie is holding firm, despite softer trade numbers O/N (+2.56b vs. +3.02b). Commercial bids and a market appetite for gold have helped slow sales. Australian employment data this week is forecasted to show the jobless rate rose to +5.3% last month from +5.2%. With Italian PM Berlusconi agreeing to step down once the austerity measures become law has given growth and risk sensitive currencies a timid boost in this afternoon session. Australian housing finance data out later this evening is expected to take a back seat to any European developments and China CPI. Resilient growth from the Chinese economy will be supporting antipodean currencies. In this current environment, the market remains a better seller of the currency on rallies (1.0382).

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