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The Canadian Dollar Continues to Find Support from the USMCA.

Jeffrey Scott

The loonie remains relatively flat against its US counterpart. The initial drivers of Canadian dollar strength were felt earlier in the week with the re-negotiated NAFTA now coined the USMCA and with the appreciation in the price of oil being the main catalysts. With no economic released due until tomorrows Ivy Purchasing Managers Index and Friday's Employment and Trade Balance figures the loonie will trade on the ebb and flows of market sentiment and demand.

There will be news from south of the border with FOMC member speeches, PMI numbers, Oil inventories, and ADP employment change. Crude oil continues to trade at the 75 dollars per barrel mark.

From a technical perspective, the USDCAD sees first support at 1.2820 and second at 1.2779; resistance is seen at 1.2861 and 1.2903.

The dollar strengthened against most major currencies yesterday as investors shunned risk, evidenced by the sell-off in Asian equities, and made worse by the developing situation in Italy. It’s given up some of these gains overnight as risk appetite has improved a little since.

US Federal Reserve chairman Jerome Powell in his speech in Boston yesterday remained positive on the outlook of the United States economy, as the Fed looks to continue its gradual interest rate normalization while balancing current domestic expansion. There was very little for market participants to take away from the speech. The consensus is that a December rate hike is already 75% priced into the markets, so fundamentals that support any further tightening by the Fed will be closely watched.

Traders and investors will now turn their attention to ADP Non-Farm Employment figures which were better than expected at 230K from a 163k last month. Later this morning we have Market PMI and ISM non-manufacturing PMI as well as EIA Crude Oil Inventories. FOMC members are still front, and center with speeches from Brainard and Mester at 2 pm and 2:15 pm followed by Fed Chair Powell's speech at 4 pm.

The euro downturn continued through trade on Tuesday touching six-week lows, as the war of words between Italy and the wider European community escalated. The 19-nation combined unit fell through 1.1550 to touch intraday lows at 1.1507 following comments from a senior Italian lawmaker suggesting Italian debt issues could be resolved should it roll back the Euro and adopt a national currency. The comments compounded concerns surrounding the unity of the wider Eurozone and ensure headline risk remains a driving force governing broader Euro direction.

The euro found support later following Prime Minister Conte’s denouncement of the comments and confirmation that the euro was “un-renounceable.” The currency remains mostly well supported on moves approaching 1.15, a critical technical retracement marker. EUR/USD has bounced in early Europe as overnight reports suggest that Italy is now planning to cut back its budget deficit to 2% by 2021, due to pressure from the EU. However, a move and extension of recent downside could prompt a more profound correction and opens the door for moves toward 1.13 our mid-August low, which printed a 1.1301on August 14, 2018.

It was “risk off” yesterday, and the greenback was bid across the board. GBP/USD slipped below 1.30 to a three-week low. GBP traders are also perhaps a little cautious and concerned by the threat of negative Brexit related headlines emanating from the Tory party conference this week. The big risk event for the pound is today, with PM May due to make her closing speech at 8 am EST.

GBP/USD has since recovered as global risk appetite has improved in the last 12 hours or so. It’s trading close to and around the 1.30 figure. UK Markit Services PMI due today only missed expectations slightly at 53.9 expected was 54.0.

Support for GBP/USD is seen at 1.2945 and resistance is at 1.3029.

Tuesday’s RBA monetary policy meeting did nothing to surprise markets with the central bank opting to keep rates on hold for the 24th consecutive meeting. The accompanying language was mostly unchanged from the September meeting with growth projections still locked in at a touch over 3% and expectations that we will begin to see an uptick in inflation in 2019 and 2020. The RBA also remained upbeat on employment, noting that the unemployment rate is trending lower and has fallen to an almost 6-year low at 5.3%. Regarding future monetary policy direction into the future, markets are now pricing a 40% probability of a rate hike by the end of 2019.

Wednesday’s data calendar was relatively light with only building approvals and the Ai Group Performance of Services index in Australia.

Finally, from a technical perspective, we see AUD/USD resistance at 0.7262 while the pair seems relatively well supported at the 0.7145.

The New Zealand Dollar see-sawed its way through trade yesterday, having opened at 0.6619. The Kiwi came under pressure touching 0.6592 on the back of NZIER Business confidence which reported a drop in the third quarter to its lowest level in nine years. The survey showed 30% of firms surveyed expected dire business conditions in NZ over the next year. The study shows firms are worried about Government policy, labour costs and availability of labour operating margins. These factors were key considerations for businesses when it came to assess general economic conditions.

The Kiwi managed to claw back losses as the day went on; unfortunately, the Greenback overshadowed and pulled the NZD back down to 0.6553 to start the NA session touching a two-week low. In other news, the Kiwi was unable to break 66c as the latest Global Dairy Trade (GDT) auction revealed the downtrend continues concluding with the GDT Price Index down 1.9% on the previous sale. The average price was US $2,901/ ton, compared with US $2,934/ ton two weeks ago. Some 41,981 tons of product were sold, up from 39,143 tons two weeks ago. Whole milk powder fell 1.2 % to US$2,753 a ton.