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The Canadian Dollar's Biggest Risk This Week Will Be CPI Data On Friday.

By Jeffrey Scott

The loonie was little changed on Friday, closing flat versus the USD at 1.3160. The CAD was able to recover from the 1.32 highs as the greenback lost steam following weaker than expected US economic data.

From a technical perspective, we continue to trade within the new 1.31/1.32 range, and it seems we’ll need further news or data releases to move away from it.

June inflation and May retail sales will be released this week from Canada on Friday. Expectations or for better numbers than the previous month's release. That said if the fundamentals are good the loonie should gain against its counterparts.

The US dollar edged lower into the weekly close, fading against other majors as stocks and equities rallied, prompting short-run profit and taking on improved risk appetite. Falling against the Yen and Euro losses were compounded following softer than anticipated consumer sentiment data. Consumer confidence fell to a six-month low in July while inflation expectations also moderated lower dampening demand for the world’s base currency. Attentions now turn to retail sales data Monday for short-term macroeconomic direction while Trade dominates broader direction and remains front and center in influencing more widespread demand.

Having touched a two-week high earlier in the session at 95.24, the dollar index corrected as risk appetite crept back; however losses were tempered somewhat as the pall of broader trade tensions hangs over investors. China recorded its biggest trade surplus with the US in June, a statistic that is likely only further to inflame trade hostilities and push President Trump to extend the Tariff war in a bid to force China to the negotiating table. With the Fed still on track to raise the rate at least once more this year, it is hard to move away from the dollar at present.

Attention now turns to retail sales data this morning for short-term macroeconomic direction. US Retail Sales MoM for June came in at the consensus as did Retail Sales ex Autos. Market reaction has been to sell the greenback as retail sales in comparison to last month’s numbers are dismal at best.

The euro closed the week on a relatively positive note, improving around 0.10% to 1.1685, after being down more than 0.50% versus the greenback earlier in the day on Friday. The dollar gave up its gains on Friday in line with lower US yields and following lower than expected import prices data and a weaker University of Michigan Sentiment report.

The EURUSD continues to trade within the 1.16 to 1.17 range, with both levels acting as strong short-term support and resistance respectively.

The pound was well supported at the start of last week, reaching a high of 1.3365 vs. the dollar. However, it dropped and found support at the round number of 1.3100 as it looked like some tensions were growing between UK Prime Minister May and US President Trump. Trump had disapproved of May's Brexit policy and said it would threaten a trade deal between the US and the UK, weighing on GBP. He later went on to publicly apologize for his reported attack on UK PM May’s Brexit strategy and apparent support for Boris Johnson, saying a free trade deal was “absolutely possible,” and praising Theresa May as a “tough negotiator.”

On Sunday, during a live interview with the BBC, PM May revealed Trump’s big advice regarding Brexit. He told her that she should sue the EU over Brexit terms, and should not "go into negotiations," effectively pushing for an extreme, hard Brexit scenario. This Monday, the House of Commons will review the government's trade bill, and May hopes there won't be amendments to it. A clean vote that supports her strategy will likely help the pound well supported.

Looking ahead to economic data this week, we are due to average earnings and employment data on Tuesday, followed by CPI on Wednesday and Retail Sales on Thursday, so a busy week ahead for the pound.

The Australian Dollar remains relatively unchanged to start the week, opening this morning at 0.7413. The Aussie closed out its fourth consecutive week hovering around the 0.74 mark, unable to progress amid the broader narrative of trade tensions that are dominating the headlines.

The Aussie oscillated for most of Friday, ranging from between 0.7364 and 0.7482 as trade concerns weighed on the Aussie. Again, the impetus for direction was found in the headlines with President Trump ramping up the tariffs to a proposed $200b worth of goods. China didn’t immediately retaliate, as widely expected, which provided some much-needed relief for the Australian Dollar. The relief coalesced into a small rise for commodity currencies, including the Aussie as risk appetites returned to the market. Nevertheless, markets trade within a tight range as trade war headlines dominate attentions for the Aussie.

Moving forward, Monday remains relatively quiet on the Domestic Calendar as direction again turns offshore. Australia’s most important trading partner, China, offers multiple relevant figures including Q2 GDP, Industrial Production and Retail Sales.

The New Zealand dollar closed last week slightly weaker when valued against the US Dollar. The kiwi dollar traded at 0.6775 at the close on Friday, down from 0.68 cents a week ago. The kiwi continues to struggle on the back of weak domestic data and headlines about a worsening trade war between the US and China.

On Friday we saw the release of Business NZ Manufacturing Index (PMI) for June which dropped 1.6 points to 52.8 (a PMI reading above 50.0 indicates that manufacturing is generally expanding). Looking ahead this week and the macroeconomic calendar is relatively light with the only major release Tuesday’s second quarter Consumer Price Index (CPI). With a quarterly rate of 0.5 percent forecast, the annual increase of 1.6 percent, should result in keeping the Reserve bank of New Zealand cautious and monetary policy in a neutral stance.

From a technical perspective, the NZD/USD pair is currently trading at 0.6763. We continue to expect support to hold on moves approaching 0.6736 while now any upward push will likely meet resistance around 0.6788.