Now the dots are connected on the big Canadian dollar drop today

Today's Canadian dollar's decline was ultra-curious given:

1. Canadian GDP today was strong at 2.9% vs 1.5% expected
2. Oil is higher today
3. AUD and NZD are each up 0.5% today
4. Stocks are only down modestly (and were flat when the loonie was dumping)

I highlighted that it was curious as it kicked off and probably flow-driven. Well here are the flows: Canadian bank RBC is buying HSBC's Canadian operations for C$13.5 billion.

I saw this headline earlier and didn't connect the dots (shame on me) but it all makes sense now. The deal hedging was put on almost immediately after the deal was announced early in Toronto hours and the CAD-selling stopped when London closed.

Even on the strong Canadian GDP print, there was a 15 pip drop and it looks like someone sold heavily into that, which is exactly the kind of liquidity Liquidity Liquidity refers to the extent of a financial instrument’s ability to be bought or sold without causing price fluctuations. Thus, if an asset is extremely liquid, it means one can trade that asset in the knowledge that one’s specific dealing won’t create significant movements in the market.This is because there exists such a large number of traders going both long and short, generating huge volume for that particular asset. Liquidity in the FX MarketTake the example of the foreign exchange marke Liquidity refers to the extent of a financial instrument’s ability to be bought or sold without causing price fluctuations. Thus, if an asset is extremely liquid, it means one can trade that asset in the knowledge that one’s specific dealing won’t create significant movements in the market.This is because there exists such a large number of traders going both long and short, generating huge volume for that particular asset. Liquidity in the FX MarketTake the example of the foreign exchange marke Read this Term the CAD CAD The Canadian dollar (CAD) is the official currency of Canada and at the time of writing is the fifth most-held reserve currency in the world behind only the US dollar, euro, Japanese yen, and British pound.The CAD is commonly referred to as the Loonie by forex analysts and traders. At the time of writing, the CAD accounts for 2% of all global currency reserves.Its appeal is strong among central banking authorities given Canada’s economic strength, sovereignty, and historic stability.Originally i The Canadian dollar (CAD) is the official currency of Canada and at the time of writing is the fifth most-held reserve currency in the world behind only the US dollar, euro, Japanese yen, and British pound.The CAD is commonly referred to as the Loonie by forex analysts and traders. At the time of writing, the CAD accounts for 2% of all global currency reserves.Its appeal is strong among central banking authorities given Canada’s economic strength, sovereignty, and historic stability.Originally i Read this Term-sellers would be looking for.

So the question now is: Can CAD continue to retrace?

If you just take AUD and NZD, I think this pair could fall 1%. Maybe discount that slightly because of AUD and NZD torque to China and the optimism on lockdowns there but that still leaves plenty of room for a loonie recovery. Moreover, oil is hanging in nicely today today despite hopes for an OPEC+ cut getting buried.

There will be some cross-currents with Powell tomorrow and a heavy data slate but all else equal, I'd expect a fall back to 1.3500.