Canadian Dollar Tumbled On Data And BoC Comments

Canadian dollar tumbled sharply overnight and hit a three year low against the greenback after weak trade and PMI data. Also weighing on the Loonie was comments from BoC governor Poloz. Poloz said in an interview that the central bank would be "holding rates where they are until the data flow changes our mind" to minimize the risks of making a "big mistake". Finance minister Flaherty said during the weekend that there was calls from OECD and IMF for Canada to hike rates. But Poloz said he's not worried by those international calls for rate hikes. Meanwhile, he also noted that he's worried about inflation under-performing.

Technically, the USD/CAD jumps to as high 1.0793 so far. The GBP/CAD also edged to new high at 1.7697. However, the EUR/CAD is staying well below near term resistance at 1.4817 so far. Overall weakness in the Canadian dollar is not too overwhelming. And, we'd start to expect some strong resistance above 1.08 to limit upside in near term. Thus, we'd stay cautious on bottoming in the Canadian despite the current sell off.

Overnight in the US, stocks staged a strong rebound with DOW closing up 105.84 pts at 16530.94, heading back to record close at 16576.66. 10 year yield dropped for another day to 2.937% and is moving away from 3% handle. San Francisco Fed Williams said that Fed will likely continue to taper the asset purchase and "eventually eliminate them, over this year." But, he emphasized that "scaling back on asset purchases is not a retreat from accommodative monetary policy". He used an analogy that "we're starting to ease off the gas, but we're nowhere near hitting the brakes yet.''

Boston Fed Rosengren said he's "comfortable" with the current tapering approach. He noted that "roughly a $10 billion at each FOMC, if we were to gradually reduce purchases, I think that would be appropriate." Meanwhile, he emphasized he'd not prefer any "dramatic steps" at this stage.

Looking ahead, the FOMC minutes for December meeting will be a major focus today. That's the meeting where the Fed announced the decision to start tapering the USD 85b per month asset purchase to USD 75b in January. Attention will be on the discussion among policy makers on the schedule of tapering. Markets are generally expecting the Fed to reduce the size of asset purchase by USD 10b in every FOMC meeting this year. And, QE would end by late 2014.

Other focus include German trade balance and factory orders, Eurozone retail sales and unemployment. Also, the US will release ADP employment change which is expected to show 195k growth in December.