CAD, RUB Weaker On Oil Prices; China CPI Slows

 | Oct 15, 2014 05:31AM ET

Market Brief

The falling oil prices hits the oil exporter currencies heavily. USD/CAD advances to fresh 5-year high of 1.1344 as crude declines to $81.32. The upside move gained good momentum after breaking the former high (1.1279). Bullish trend gains pace, option bids build strong above 1.1200/50 walking into Friday’s CPI reading. Markets expect slight cool down in Canadian infaltion dynamics from 2.1% to 2.0% y/y. Soft inflation should reinforce CAD-bears giving more dovish flexbility to Poloz’s BoC. Especially at times Canada’s larger export business is threatened by falling prices. The BoC rate decision is due on October 22nd, we expect dovish stance.

Another currency heavily hit by oil prices is the Ruble. USD/RUB extends gains to fresh all-time high of 41.0419, as oil prices continue sliding. The Central Bank of Russia canceled its bond auction today, the Russian 10-year government yields hit 9.98% (highest levels since Oct 2009). Trend and momentum indicators are comfortably positive, option bids are building at 40.00+.

In China, the CPI grew 1.6% y/y, near 5-year lows (vs. 1.7% exp. & 2.0% last), the PPI decelerated at the pace of 1.8% (vs. -1.6% exp. & -1.2% last). USD/CNY rebounded to 6.1300 as the soft inflation revived expectations for more PBoC stimulus. Large option barriers are placed at 6.13/6.14 and 6.15 for today expiry. The bias remains negative, with resistance seen at 6.1363/95 (21-dma / MACD pivot).

GBP/USD extended losses to 1.5877 overnight as Asia followed the post-CPI sell-off. The UK labor data is due today (08:30 GMT), expectations are optimistic. We will be closely monitoring the wage growth in August data. Any negative surprise should place 1.5855-support at risk. Resistances are placed at 1.6003 (Fib 50% on Jul’13 – Jul’14 rally), 1.6182 (21-dma), 1.6284 (Fib 61.8%). EUR/GBP tests 100-dma (0.79555) on the upside. Trend and momentum indicators are comfortably bullish. Option barriers at 0.7960/80 are to be cleared.