Not Just Oil Chilling CAD

The US dollar was broadly higher on Monday has the hours tick down ahead of Humphrey Hawkins. The pound was the top performer to start the week while the Swiss franc was the laggard as it resumed its descent. Japanese small business confidence data is due later but we look at another factor weighing on CAD. 

The market wasn't quiet to start the week. Cable made a strong move higher a peaked just show of last week's high despite a slightly soft CBI Reported Sales report. The pound has quietly been a very good performer after falling in the first few trading days of the year. It's particularly noticeable in EUR/GBP, which has been in a steady downtrend and touched the lowest in 7 years on Monday. There is very little near-term support below.

Economic data included US existing home sales, which fell to 4.82m compared to 4.95m expected. There is an increasing focus on US weather in economic forecasts for Q1 after snow last year chopped down GDP. Forecasts bear watching in the month ahead but the bigger risk might be in Canada, which has been hit by an extremely harsh winter. Toronto temperatures hit a record low Monday and the cold could exaggerate the weakness in an already-crippled economy.

In addition, oil prices turned lower once again on Monday. The initial drivers were shipments reopening from Libya and Oman pledging to raise production. The real tell may have been comments from the Nigerian oil minister. She said they may call an emergency OPEC meeting but the $1 bounce in crude washed out in less than an hour. A market that can't rally on good headlines probably can't rally at all.

The main focus in the day ahead will be Yellen and it hinges on whether or not she hints at removing 'patient'. Taking it out would give the Fed some flexibility while not committing them to hiking rates in June and that will be the message Yellen is likely to emphasize. 

In the near term, the Asia-Pacific calendar remains light but Feb Japanese small business confidence at 0500 GMT is a highlight. It's expected to tick higher to 47.0 from 46.3.