Canada Markets

Canada's export market, including grains, received a boost in Wednesday's market upon release of the Bank of Canada market outlook. The Bank of Canada left its key borrowing rate at 1%, where it's been for two years. At the same time, the BOC indicated it has overestimated the strength of the Canadian economy and has delayed the notion of the interest rate hikes that it has been warning of for quite some time. Canadian growth has been revised to 1.9% for 2012, down from their previous forecast of 2.2%, and 2% for 2013, down from their 2.3% forecast that was released in October.

Of interest, with respect to the interest rate announcement, Governor Mark Carney still suggests that rates will eventually move higher. J.P. Gervais, Farm Credit Canada's Chief Ag Economist, tweeted this morning that despite the current steady rates, "agribusinesses should ensure they can withstand a 2% increase."

The dark cloud hanging over the Canadian economy continues to be the land-locked nature of western Canadian oil supplies and the ability to get production moved to market. Lack of pipeline capacity has forced western oil supplies to trade up to a $50 per barrel discount from the world's Brent crude benchmark. Total costs to the economy are suggested to be $1.5 billion per month.

The Canadian dollar faced a sharp sell-off as a result of this morning's news. The loonie has been well supported for the past year with hints of an increase in rates, which ultimately led to increased interest in the Canadian dollar. The Canadian dollar is currently trading 64 basis points lower to $.9997 CAD/U.S. dollar, after breaching the support of the March contract's 50-day moving average in recent days, which is currently at $1.0067 CAD/U.S. dollar. Trade fell below par with the U.S. dollar in today's trade for the first time since the week of Nov. 19. As well, this week's activity has led to the breach of the Canadian dollar's uptrend, which has been in place since late May. Both daily and weekly stochastic indicators are in neutral territory but pointing lower, indicating momentum remains to the downside.

Support may come from the contract's 200-day moving average (not shown) at $.9975 CAD/U.S. dollar, a previous weekly low at .9957 CAD/U.S. dollar as well as the contract's 50% retracement level of its May through September uptrend at $.9932 CAD/U.S. dollar, as seen on the attached chart.

Canola futures reacted positively to the news, moving up $5.50 per metric ton this morning to reach a high of $610.50/mt, with suggestions made that the falling dollar was one of the major contributing factors. Spillover pressure from soybeans did eventually lead to profit-taking, which pushed prices lower, although canola did end the session with an $0.80/mt gain, as compared to soybeans 14 3/4 cent loss in the nearby March futures.

Cliff Jamieson can be reached at cliff.jamieson@telventdtn.com

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