Super-CAD keeps up head of steam on inflation data

FX Update: Super-CAD keeps up head of steam on inflation data

The Euro continued to slide overnight and into the early US hours, as the major low for the cycle at 1.3435 is rapidly approaching. GBPUSD failed to hold the 1.5240 area support and dropped a figure as well in the overnight action. The resilient commodity currencies remain the market's high-flyers, as the AUDUSD has managed to stay within the higher range and USDCAD is pounding on the lows for the cycle again after supportive Canadian economic data . A break lower in US bonds this morning is challenging the JPY crosses as USDJPY remains engaged in an epic battle with the Ichimoku daily cloud and 55-day moving average resistance ahead of the end of the Japanese financial year this month.

US vs. Canadian CPI data
In the US, the latest round of CPI numbers suggest waning price pressures (especially, as we mentioned, if the latest trends keep up into the summer, as the year-on-year comparisons for oil prices will stabilize far more, assuming oil doesn't move dramatically out of its 6-month range.), with the year-on-year rate coming in at 2.1% for the headline inflation while core inflation was 1.3%. Canada's inflation is largely similar, but the core inflation is increasing quite a bit more on the year-on-year comparisons and is rising. One thing to consider when looking at these numbers is that the Canadian dollar has risen some 20 on a trade-weighted basis in the last year, while the USD is slightly lower, so if this inflation data is "accurately measured" (a tremendous assumption), then the Canadian data looks far more inflationary. One-year forward bank bills rose about 10 ticks on this data release before the Retail Sales data release and the Canadian dollar blasted stronger across the board. The combination of the high-flying CAD and suffering EUR has EURCAD probing new local lows, having fallen almost 15% over the last four months and close to hitting the lowest level since 2001.

Chart: EURCAD
The Euro is the dog of the G-10 and the CAD has been the "Super CAD" of late on higher expectations for interest rate hikes in the pipeline. The combination has resulted in spectacular action for the EURCAD cross, which is now challenging major structural lows since 2001.

Looking ahead
Remember that today is triple witching day in the US, when futures, options on futures, and options on equities all expire, so we could get some strange action on the US equity market today (already strange, so not sure that this is really a factor)

Next week's event risk highlights include:

Tuesday

• BoJ Monetary Policy Meeting Minutes - could be interesting due to the dissent on the latest decision to increase the lending facility.
• SNB's Hildebrand to speak - obviously critical after the blowout move in CHF yesterday on the new member Danthine's words.
• UK Feb.CPI/RPI - which has received a lot of focus after the CPI data notched above the key 3% threshold that requires the BoE to write to the Chancellor of the Exchequer. This release will get a lot of attention
• US Feb. Existing Home Sales/Weekly ABC Consumer Confidence:  The market will look at all housing data with a jaundiced eye until we get over the homebuying tax incentives that expire at the end of April. The Weekly confidence number receives a little more focus than normal due to the tremendous hop in the index on the last reading.

Wednesday

• Germany Mar. IFO - flattened out last month for the first time since bottoming out last spring. This has been a good leading indicator in the past, so always worth a lot of attention
• EuroZone Mar. Preliminary Manufacturing and Services PMIs
• Norway Norges Bank Deposit Rate Announcement - market split on whether Norges Bank hikes again. Meanwhile, EURNOK has moved down through he important psychological barrier at 8.00.

Thursday

• New Zealand Q4 GDP - expected to show year-on-year GDP growth for the first time in six quarters
• US Fed's Bernanke to speak on exit strategy (rescheduling of hearing that was snowed out in February - testimony has already been published)

Friday

• New Zealand Feb. Trade Balance - a tough number to follow because it is not seasonally adjusted
• Japan Feb. CPI - the last year on year core reading came in at -1.2%, matching the lowest level in the nation's lost decade(s)
• US Q4 GDP final adjustment - 5.9% growth, yes, but what is the quality of the growth?

Economic Data Highlights

• New Zealand Feb. Credit Card Spending fell -0.3% MoM and rose +1.1% YoY vs. +2.7% YoY in Jan.
• Japan Feb. Nationwide Department Store Sales fell -5.4% YoY vs. -5.7% in Jan.
• Germany Feb. Producer Prices out at 0.0% MoM and -2.9% YoY vs. +0.1/-2.8% expected, respectively and vs. -3.4% YoY in Jan.
• Canada Feb. CPI rose +0.4% MoM and 1.6% YoY vs. +0.3/+1.4% expected, respectively and vs. +1.9% YoY in Jan.
• Canada Feb. Core CPI rose +0.7% MoM and +2.1% YoY vs. +0.3/+1.7% expected, respectively and vs. +2.0% YoY in Jan.
• Canada Jan. Retail Sales out at +0.7% MoM and +1.8% MoM less Autos vs. +0.6/+0.5% expected, respectively

Upcoming Economic Calendar Highlights

• US Fed's Bernanke to speak (Sat 1300)
• Australia Feb. New Motor Vehicle Sales (Mon 0030)