Strong buying pressure pushed the USDCAD to bust out of consolidation and break above the 1.0700 mark. Risk aversion which resulted from a weak US economic reports, combined with BOC Governor Mark Carney's comments against CAD strength, carried the USDCAD all the way up to a high of 1.0814.
In his speech yesterday, Carney reiterated that conditions in the Canadian economy have improved but the major challenges to recovery remain. One of these, according to him, was the heightened volatility and strength of their local currency. He expects that the recent appreciation of the CAD would impede growth, subdue inflation, and offset the impact of their easing policies. He then announced that the central bank expects the Canadian economy to contract by 2.4% this year and grow by 3.0% in 2010.
For today, Canada has a couple of minor inflation indicators on tap. These are the raw materials price index and industrial product price index. Both are expected to post declines in September, indicating that the strong CAD is indeed putting downward pressure on inflation. These reports are due 12:30 pm GMT.
The US third quarter GDP reading, which is also at 12:30 pm GMT, should have a larger market impact than the inflation reports from Canada. The report is expected to print 3.2% in economic growth for the third quarter after posting a 0.7% contraction in the second quarter. If the actual reading fails to hit the mark, risk aversion could push the USDCAD even higher.
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