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The Loonie’s decline Tracks Crude Oil Fall as Global Growth is Cut by the IMF

Jeffrey Scott

The Canadian dollar fell against its G10 trading peers yesterday which has continued through the overnight. Most of the losses are against the EUR and GBP as optimism for a trade agreement with the EU, and Britain is larger expected by early next week.

Canadian Building Permits gained 0.4%, shy of the estimate of 0.5%. Canadian municipalities issued $8.1 billion worth of building permits in August, up 0.4% from July. Strength in the non-residential sector drove the increase, while the residential area declined for the third consecutive month. Today at 8:30 have we had Now Housing Price Index MoM for August estimates been in line with previous of 0.1% and the actual print is seen at 0.0%

From a technical perspective, the USD/CAD pair is currently trading at 1.3045. We continue to expect support to hold on moves approaching 1.3029 and 1.2987while now any upward push will likely meet resistance at 1.3072 and 1.3114.

US stocks fell yesterday to the most since February of this year. The selloff continued through the overnight with Asian equities down also, China's Shanghai Composite fell 5.2%, and we have read that more than a 1000 stock fell to their daily limits. The Catalyst to the selloff steams from trade war tensions with China and the US the world’s two largest economies, reduced profits for US corporations, and also central bank accommodative policies coming to an end. The IMF even in the last forty-eight hours lowered its global growth forecast for 2019 from 3.9% to 3.7%, this saw crude oil prices fall as market participants see demand waning.

Focus today is on the release of the US CPI figures which on the whole posted 0.1% lower in all risk events from YoY and MoM Core CPI and CPI. This may have market participants factor the possibility of the Federal Reserve holding on interest rates and the fall in global equities maybe slowed. Rising interest rates are the Achilles heel of the Trump administration, President Trump yesterday said the Fed had "gone crazy" and tightening policy was to blame for the sell-off versus trade tension with China.

US Equities at time of writing are pointing to a continuation in the market selling off. Gold is which is seen as a eversion to risky asset jumped 15 dollars in the last 12 hours to 1209 per ounce up 1.3%.

EUR/USD bounced off support levels of 1.15 yesterday and advanced to its highest value this week. Strong numbers for both Italian and French Industrial Production supported the moves higher during the European session, seeing EUR/USD move to an overnight high of 1.1570.

Deputy Italian Prime Minister Matteo Salvini assured that his country would not back down from its budget plans, despite yields reaching highs, and reiterated that the country has no plans to leave the EU. Broad greenback weakness following ongoing trade wars tensions between US and China supported the rally higher. A lot of the focus remains on Italy at the moment, with the situation fueling the sell-off in European stocks, which have fallen to a 20 month low this morning.

The pound continued its positive run upwards yesterday, forcing its way above 1.32 for the first time since September 26th. Month-on-month GDP figures released yesterday morning remained flat and slightly below expectations. Despite this, Industrial and Manufacturing Production printed up 1.3% on the year. The pound traded briefly lower on the data, but ultimately it had little impact amid the increasing Brexit headlines.

Brexit again remained the key focus for traders. GBP/USD appreciated significantly after comments from the EU’s Chief Negotiator Barnier. Barnier indicated that a withdrawal deal was 80-85% done although they still need to agree on the Irish border issue. PM May’s chequers plan was also referenced, with the EU suggesting they found many points of convergence, which could see the UK remain temporarily in the EU’s customs regime. It has been reported that Raab may head to Brussels on Monday if a deal can be made to work. The GBP outperformed most of the major currencies on the back of Brexit optimism, rising roughly 0.5% on the day.

Brexit remains front and center. Carney is speaking this morning, and it will be difficult for him not to make mention of recent Brexit developments. US inflation numbers are then released this afternoon, so it may be another bumpy ride for GBP/USD today.

The Australian’s dollars upward push stalled through trade on Wednesday as investors appeared reluctant to extend upside moves beyond 0.7120/30. Despite a broader backdrop of falling equities and a general risk-off mood the AUD traded mostly sideways, maintaining a tight 50-point handle between 0.7070 and 0.7130.

With little macroeconomic data on hand to drive direction, the impetus for investor moves has derived from broader risk appetite and volatility, hampering any short-term upside correction and ensuring the Aussie Dollar remains under a broader bearish cloud.

With little of note on today’s domestic docket attentions shift to key US inflation data. Fears the US economy may see a faster pace of price increases have weighted on investors, heightening concerns the Fed will be forced to accelerate the pace of interest rate hikes, dampening demand for equities and pushing treasuries toward recent highs. We continue to watch supports at 0.7040 and 0.70 with short-term resistance on moves approaching 0.7130.

The Kiwi traded sideways overnight as US and European equity markets suffered significant falls. There was no obvious catalyst for the depreciation in equity markets as currency markets remained well contained amid an absence of any news. NZD/USD opens this morning at 0.6470 and as we stated yesterday, looks to have consolidated around this level following its recent underperformance. The Kiwi fell 0.5% against the GBP, 0.4% against the EURO and rose 0.4% against the CAD as oil prices retreated.

Wrapping up yesterday’s risk events, electronic card transactions rose by a lot more than expected in September – although it's not a release that moves markets, it is further evidence of the domestic economy ticking along just fine. We also saw US PPI and UK GDP numbers released overnight which were in large part in line with expectations.

On the technical front, NZD/USD remains well supported at the 0.6350 level with any topside moves expected to meet resistance on moves approaching 0.6500.