Published: Wed, 29 Apr 2009 17:10:06 +0200

Canadian Dollar and Other Commodity Currencies Move Higher Against U.S. Dollar

(CEP News) - Commodity currencies are the top performers against the U.S. dollar as risk appetite moves back into financial markets, boosting equity markets Wednesday morning.

The top performers of the day are the New Zealand dollar, the Australian dollar, the Norwegian krone and the Canadian dollar.

Looking at USD/CAD, the cross has been on a strong downtrend throughout most of the session and remains near the bottom of Wednesday's trading range, hovering just above 1.20 CAD. Currency strategists are expecting stronger equity markets and positive market sentiment to continue to support the loonie in the short term.

Weaker-than-expected first-quarter U.S. GDP has not provided much direction for currency markets Wednesday morning. Advance GDP for the first quarter of 2009 contracted 6.1% against expectations of a 4.7% decline. The previous quarter's 6.3% contraction was unrevised.

The results mark the fifth decline in quarterly GDP since the credit crisis began in August 2007.

More headlines on the swine flu have not dampened the positive sentiment running through markets either. According to media reports, a 23-month old boy from Texas is the first person to die of the virus in the U.S. According to the Centre for Disease Control, there are now 91 cases of the swine flu in the U.S.

John Hardy, FX strategist at Saxo Bank, said traders could be feeling that concerns over a potential pandemic are a non-issue for the moment. However, he added more bad news could cause a sharp reversal in market sentiment.

"We certainly hope that the market is correct on this matter, but are also fearful of the potential effects on everyone if this sanguine assessment proves premature," he said. "Let us all earnestly hope that the market's optimism is justified on this matter, while understanding the potential for disaster."

Looking at commodity currencies, such as the Canadian dollar, Hardy said their fate will continue to be determined by moves in the equity market.

George Davis, chief technical analyst at RBC Capital Markets, said he is still bullish on the Canadian dollar and is expecting the 1.21 level to act as strong support in the short term. He said the bullish trend in the Canadian dollar could lead USD/CAD to test support at 1.853 CAD.

Euro/USD up 1.14 cents to 1.3262

USD/CAD down 1.63 cents to 1.2032

USD/Yen up 0.50 points to 96.94

GBP/USD up 1.31 cents to 1.4766

AUD/USD up 1.69 cents to 0.7232

Euro/Yen up 1.76 points to 128.56

Euro/GBP down 0.03 pence to 0.8982

GBP/CAD down 0.74 cents to 1.7766

CAD/Yen up 1.46 points to 80.58

Euro/CAD down 0.76 cents to 1.5958

The U.S. Dollar Index is down 0.67 points to 84.49

All data taken at 11:08 a.m. EDT.

By Neils Christensen, neilsc@economicnews.ca, edited by Sarah Sussman, ssussman@economicnews.ca