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The Loonie is in a rally mode after the crude oil bounce.

Isaac Figueroa

The Loonie had an excellent day yesterday, which was pushed by a bounce in crude and the USD/CAD pair moved 0.51 percent lower. The USD/CAD continues appreciating this morning underpinned by crude prices, which are up another 2 percent due to the cut of oil exports by Saudi Arabia, the top exporter.

The employment numbers in the US are helping the Loonie this morning; unemployment claims came in at 231 k when the expected was 220k. The 'actual' value being more than 'forecast' is bad for the US dollar. However, the ADP Non-Farm employment change came in at 271k versus 179k; the 'actual' value being greater than 'forecast' is good for US dollar.

The US dollar index rallied 0.76 percent in yesterday’s session as weak Chinese manufacturing PMI for December came in at a lower number than expected (49.7 versus 50.1). The manufacturing PMI in China is a leading indicator of economic health and reacts quickly to market conditions. The FX market was already suspicious of China, but Tim Cook, Apple CEO, came right out and said that a sharp macroeconomic slowdown in China was almost entirely responsible for a drop in revenue guidance. Will the US-China trade war topic escalate again soon?

On the economic release side, unemployment claims came in at 231 k when the expected was 220 k. However, the ADP non-farm employment change came in at 271 k versus 179 k. At the time of this writing, the US dollar is under pressure, falling 0.14 percent. Furthermore, market participants are cautious as they await headlines on the new Congress which is expected to be sworn into power today in the US.

The big move happened with the Japanese Yen; the Yen was already near extreme highs with many of its crosses, and the USD/JPY pair touched the lowest level since March 2018. A more unusual move was the AUD/JPY, which crumbled to the weakest level since 2010. This situation was especially unique, because it was a bank holiday in Japan all week, and yesterday many FX pairs had insane moves and showed wide spreads, even in FX majors.

The Euro followed the example of the Pound yesterday, starting the day slightly on the front foot before suffering against the US dollar as concerns arose over a global slowdown. It’s a big year for the Euro area and Europe all in all. There is Brexit to talk about, but there are also European elections as well as some crucial European positions up for renewal; the head of the ECB is one of them.

Italy may have finalized a budget for 2019; however, it was confirmed yesterday that in December, manufacturing in the country contracted for the third month in a row. This is significant because Italy is crucial within Europe for manufacturing, having the second largest base.

It would be fantastic to kick-start the year and not talk about Brexit or at least talk about how Brexit has been finalized, but alas. Despite it being a new year, some things don’t change.

We are now just 85 days, and not a lot of progress happened over the Christmas break with MPs away, but Theresa May did take the opportunity on New Year’s Eve to urge Parliament to vote for her Brexit deal. This came off the back of reports that the Prime Minister did little over Christmas to win concessions from EU leaders. There isn’t much more for markets to think about at the moment; Brexit is entirely dictating terms. Things didn’t get any better for the Pound yesterday either as it started the year with lousy form finishing the day as one of the market’s worst-performing currencies. There were some reasons for yesterday’s moves, but overall the most significant driver was the concern about risk and the flood to ‘safe haven’ assets, in this case, the US dollar.

The Australian dollar yesterday faced the perfect storm when poor Aussie dollar outlook for the year met the resurging US dollar. Indeed the AUD/USD pair sunk to its lowest levels since the start of 2016. Australia is intrinsically invested in China; it has been its largest trade partner, and so with the announcement and realization that China could struggle in 2019, an appetite for the Australian dollar is falling.

The story of the Kiwi was the same as that of the Australian dollar with concerns of growth from China hammering the New Zealand dollar. The Kiwi slipped to its lowest levels against the US dollar since November, not a great start to the year.