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Commodity Markets Push Canadian Dollar Higher In May

Written by A Forex View From Afar on Monday, June 01, 2009

The financial markets saw some strong trends in May, as more and more investors became bullish on the global and equities

The most important rally observed in May, that had widespread influence over the financial markets, was the in raw materials. Crude oil, gold and metals surged as demand from China and the other emerging economies were stronger than expected. Some analysts even suggested that China is using its huge FX reserves to buy and deposit cheap commodities, instead of buying Treasury notes. However, this theory fades as recent reports showed that China still bought Treasuries in the last part of year, despite the complaints issued by top Chinese officials.

Together with oil, the cad experienced the strongest monthly decline since the 1950’s, in May. The Canadian dollar was pushed higher against the dollar as crude oil surged. The cad has a close correlation with the energy markets, since energy products are Canada’s main export products. The Canadian dollar weakened only 2 weeks out of the 13 since the rally in the equity and commodity markets started, in early March, something that suggests the pair’s strength, TheLFB-Forex.com Trade Team said.

The pound also saw some strong upward pressure during the previous month of trading. The pound gained more than 9% in May, much more than the S&P 500 index, which returned 5.30% over the same period. TheLFB-Forex.com Trade Team said that currencies outperforming equity markets happen very rarely. The pound was driven higher as evidence is mounting that the decline in the U.K. housing market is slowing, even possibly reaching a bottom, they added. Both the U.K. and the U.S. economies were hit very hard by the housing market decline, and traders are now betting that the economy will recover with the housing sector. Moreover, a number of investors are speculating that inflation will surge in the coming period in the U.K, which also empowers the pound.

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Fundies and Trading
There is a constant question from some traders as to why anybody would ever need to consider the ‘F’ word when trading. Fundamentals: what is so damaging at looking at both Technical charts and having a Fundamental filter to gauge how many Lots to put on? Why is it that accepting that Technicals give us price points to trade, but Fundamentals determine the direction that we travel is so difficult for some traders to accept? Without a Fundamental Filter very few pure Technical traders would have seen this Dollar move coming today.

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