Loonie Sags, Tankan Hits With China on Holiday

The second quarter ended with a rout on oil and a break in the Canadian dollar. The New Zealand dollar was the top performer while the euro lagged. The fourth quarter begins in the Asia-Pacific region with the Japanese Tankan, Aussie retail sales and China's manufacturing PMI – all with China on holiday.  Our latest Premium trades include 2 USDCAD issued ahead of today's Canada data and the existing AUDUSD.

USD/CAD broke 1.12 for the first time since March. Four factors contributed to the move:

1. Canadian July GDP flat compared to +0.3% expected

2. The BOC's Cote said Canada is at risk from a sharp housing correction

3. WTI crude oil falling to $91.07 from $94.90

4. Mild risk aversion with stocks sliding to end the month

The pair ended the month on a tear climbing in 7 of the past 8 days and now threatening the 2014 high of 1.1280.

Overall, markets were without a clear theme, which is typical at quarter-end as flows dominate. A spell of fright hit at one point as a report circulated that Russia would consider capital controls if outflows accelerated. Naturally, Russia denied it.

The US dollar also came under pressure after a soft Chicago PMI and consumer confidence report.

A big day is scheduled in Asia-Pacific trading and liquidity will be lower with China closed for the holiday. The main event is Japan's Tankan at 2350 GMT. The large manufacturing index is expected at 10, down from 12. This is a major report and could put pressure on the BOJ to do more.

Despite the holiday, China also publishes the official PMI for Sept. It's expected at 51.0.

Finally, at 0130 GMT, Australian retail sales for August are expected up 0.4%. It will be a good chance to gauge sentiment in the beaten-up Aussie.