Archived IMT (2009.06.01)

Bigger than expected decline in Canadian Q1 GDP reduced CADs gains and gave support to USDCAD at 1.0778 before bouncing to 1.0918. There are now differing views regarding the US dollar and US bond yields, with one camp suggesting that the dollar is nearing the end of its weakness before regaining some upside as rising yields reflect an improved economy. An opposing view (ours) holds that the latest wave of dollar weakness is to remain intact (except for minor retracements) as long as equity markets make no substantial pull-back and US and global bond markets remain under pressure (rising yields). The 4.30 am GMT decision from the Reserve Bank of Australia is widely expected to keep rates unchanged at 3.00%. Interestingly, the VIX rallied despite a rally in stocks.