USD CAD Posts New Low for Year

Increased demand for higher yielding assets helped to boostthe Canadian Dollar, Australian Dollar and New Zealand Dollar on Wednesday.

Increased demand for higher yielding assets helped to boostthe Canadian Dollar, Australian Dollar and New Zealand Dollar on Wednesday.

The Canadian Dollar made a new high for the year, fueled byhigher equities and commodities, and extended its gain once Bernanke saidinterest rates would remain low. Canadian financial traders have increased betsof a rate hike on June 1, rather than July 1. Coupled with the Bernankecomments, this is bearish news for the USD CAD because it will help widen theinterest rate differential.

The charts indicate that a new main top has been formed at1.0104. The failure to accelerate to the downside following a break of the lastswing bottom at .9975 indicates that bearish U.S./Canadian traders were lessaggressive on the short-side. This could also mean bottom-pickers were heavybuyers.

The Australian Dollar rebounded after a two-day setback onincreased demand for higher yielding assets. Monday’s closing price reversaltop at .9387 is still intact. Counter-trend traders are using this reversal topas an excuse to stay short. A breakout above this level will reaffirm theuptrend and likely trigger an acceleration to the upside. The New ZealandDollar rallied for the same reason as well as a technical factor. Regaining andholding above a key 50% level at .7124 helped to push this market higher. Withthis market confined to a prolonged range for several months, a breakout over.7200 is likely to trigger a huge upside move.

The U.S. Dollar finished lower against most majorcurrencies, driven by the dovish testimony of Fed Chairman Bernanke. Inaddition to commenting on the direction of interest rates, Bernanke alsoemphasized that the economic recovery was still sluggish because of the flounderinglabor market.

Testifying before the Joint Economic Committee, Bernankereiterated the Fed’s stance that interest rates would remain low for an“extended period”.  He also said “theincome data suggest that growth in private final demand will be sufficient topromote a moderate economic recovery in coming quarter”. Finally, he added that“significant restraints on the pace of the recovery remain including weaknessin both residential and nonresidential construction and the poor fiscalcondition of many state and local governments.”

All of this added up to the perception of a weaker Dollar.The tone of Bernanke’s comments encouraged hawkish traders to lighten up ontheir long Dollar positions.

Prior to the Bernanke testimony, the U.S. Dollarstrengthened a little following a better than expected Retail Sales Report.This report was another sign that the consumer was helping the economy torecover, but the strength it generated was short-lived due to the Bernankecomments.

Bernanke’s testimony put the dismal Greek financialsituation on the back-burner for at least a day. The EUR USD struggled earlybut was able to drift higher throughout the trading session due to expectationsof lower U.S.interest rates for a prolonged period. Traders weren’t putting too muchconfidence in the rally as most expect the hedge funds to aggressively sell therally on any hint of problems in Greece.

Gains in the British Pound were attributed to lower U.S. interest rates and an improving U.K.economy although political concerns because of the May election may have cappedthe rally.

Despite the stronger equity markets and a pick-up in demandfor higher yielding assets, the USD JPY was under pressure after failing topenetrate a key 50% retracement level at 93.67. The Dollar/Yen has been underpressure since last week’s closing price reversal top at 94.77. The daily chartindicates this market is set up for a retracement to 92.26. Technical factorsas well as a clash between the government and the Bank of Canada are helping tohold this market in tight range.