"!" Loonie Extends Decline as April Ivey PMI Hits 9-month Low

04 May 2012 14:52 GMT  THE TAKEAWAY:Canada Ivey Purchasing Managers Index Fell to 52.7 in April> Lower Employment, Supplier Deliveries and Prices Levels > CAD Extends Loss vs. Major Peers
Purchasing activity in the Canadian economy expanded at the slowest pace in nine months in April amid weaker employment gain, lower price pressures and drop in supplier deliveries.
The Canadian Ivey Purchasing Managers Index (PMI) disappointedly fell to 52.7 on a seasonally adjusted basis in April from 63.5 registered in March, the Purchasing Management Association of Canada and the Richard Ivey School of Business jointly reported today. The reading was significantly meager compared to April 2011’s 57.8 and April 2010’s 59.0. The print also falls short of consensus forecast of 61.0 from Bloomberg News survey. Figures over 50 indicate expansion; otherwise values below 50 signify contraction.
Ivey Employment Index for April slightly decreased to 52.2 from March’s 52.7, pointing to weaker employment gain last month. Canada’s unemployment rate fell to 7.2 percent in March from 7.4 percent in February. Yet, analysts have expected the jobless rate to climb again to 7.3 percent last month. Besides, price pressure continued to cool down with the prices index standing at 60.3, the lowest level since August 2010. Persistent strength of the local currency caused additional downward pressure on Canadian inflation.
Ivey Supplier Deliveries Index dropped to 47.4 last month from 48.8 in March, indicating that deliveries were slower than February. In contrast, inventories unexpectedly jumped back a positive territory with the sub-index expanding at 56.8 in April after contracting to 45.7 in the previous month.
USDCAD 1-minute Chart: May 04, 2012

ay 04, 2012

Chart created using Strategy Trader – Prepared by Trang Nguyen

Canadian dollar loses ground versus most of its major peers except higher-yielding currencies (Australian dollar and New Zealand dollar) in the North American morning trade today as dismal U.S. employment report dampens risk appetite. The loonie immediately extends loss versus its major peers in the minutes following the weaker-than-expected Ivey PMI report. As seen from the 1-minute USDCAD chart above, the greenback advanced 30 pips against the loonie, rising to the session high of $C0.9940 from $C0.9910. The Relative Strength Indicator crossing above 70 indicated that market participants have been cutting their loonie holdings in favor of the reserve currency.

FOREX NEWS - Dollar rises to 9-month high versus yen; euro capped

* Yen slides to 9-month low vs dollar of 81.718

* Japanese deflation to keep BOJ focus on easing measures

* Euro slips versus dollar post-LTRO

By Neal Armstrong

LONDON, March 2 (Reuters) - The yen fell to nine-month lows versus the dollar on Friday, retreating after data showed persistent negative price pressures in Japan which are likely to keep the Bank of Japan's focus on monetary easing and undermine the currency.

The yen has taken a hit after the BOJ's surprise monetary easing in February, while the dollar found some reprieve this week after U.S. Federal Reserve Chairman Ben Bernanke stopped short of signalling more stimulus.

The dollar rose around 0.7 percent to 81.718 yen on trading platform EBS after taking out Tuesday's high of 81.661 in early European trade. Technical analysts said next resistance was the 100-week moving average around 82.19, an indicator which dollar/yen has traded below since October 2007.

The dollar rose 0.4 percent versus a currency basket to 79.102 and also climbed against the euro.

Japan's core consumer prices fell year-on-year for the fourth consecutive month in January, suggesting mild deflation - the bane of the economy for over a decade - could persist this year as lacklustre wage growth curtails domestic demand.

"The Japanese data is persistently deflationary and the Bank of Japan is ready to do all they can to turn inflation positive," said John Hardy, currency strategist at Saxo Bank.

"But I do think dollar/yen is getting a little over-extended at these levels," he added.

Traders said an option barrier at 81.75 yen was attracting protective sell orders which may prevent further dollar gains in the near term, while analysts also said the dollar's upside could be limited.

"Putting all the pieces together, we could see USD/JPY peak around 82-83, but our bias from here would be to see USD/JPY lower, towards 75 over the next six months," said Bilal Hafeez, head of forex strategy at Deutsche Bank.

"One important support for the recent USD/JPY rally was likely long JPY positions being unwound. However, our latest measure of positioning suggests that investors have flipped to extreme short JPY positions. Almost all the previous instances of this happening have seen the yen rally over the subsequent month," he added.

The Australian dollar pushed higher against the yen, although the euro was held in check against the Japanese currency. The Australian dollar hit its highest level since May 2011 of around 88.00 yen at one point.

The low-yielding yen tends to come under pressure when market optimism about the outlook for global economic growth improves. That can trigger more risk-taking among investors and increase the popularity of carry trades, in which investors sell low-yielding currencies against higher-yielding currencies.

News that Japanese brewer Asahi is emerging as a front-runner to buy eastern European brewer StarBev, helped lend support to the euro versus the yen, traders said.

EURO/DOLLAR SLIPS

Against the dollar, the euro slipped 0.3 percent on the day to $1.3256, its lowest in around a week, after traders said large stop-loss sell orders were triggered through $1.3270.

Analysts said the European Central Bank's massive cash injection this week (LTRO) has made it more attractive to use the euro as a funding currency to buy higher yielding assets.

Market players believe the cash bonanza from the ECB will ease bank funding strains and support the euro zone's sovereign bond market. That, in turn, could help spur more risk-taking among investors.

But investors are also reluctant to buy the euro while worries over debt and growth cast a cloud over the region.

Greece has taken action needed to secure a second bailout according to Eurogroup President Jean-Claude Juncker, but the money can only be paid out on completion of a bond swap between Athens and private investors to be concluded on March 9.