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The Loonie continues to trade within the rangebound of the last two weeks.

Isaac Figueroa

The USD/CAD is trading 0.30 percent higher this morning (weaker Loonie), around the 1.3300 handle, but it is still trading within the rangebound of 140 pips (1.3180 and 1.3320), as has occurred over the last two weeks. The Canadian Loonie failed to gain the upper hand due to weak crude oil price action in the overnight trading session with cautious investor sentiment from European markets.

The pace of Canadian prices increases accelerated unexpectedly in December. This is a development that could reinforce the central bank’s view that more rate increases may still be necessary this year. The CPI rose 2 percent year to year. Lower energy prices were offset by higher prices for various services, including air transportation, telephone services, and travel tours. Excluding gasoline, the CPI rose 2.5 percent in December.

The US dollar index has increased around 0.40 percent amid the US government shutdown, which is now the longest in history as Trump still refuses to re-open until the Democrats approve the $ 4.5 billion in funding needed for his US-Mexico Border wall. Polls show that the shutdown is starting to take a toll on Trump’s voters more so than the Democrats as both sides dig in for a battle they can ill-afford to lose.

China’s economy cooled in the fourth quarter, dragging 2018 growth to the lowest in nearly three decades as faltering domestic and bruising U.S tariffs weighed. The US dollar FX crosses are getting buying pressure this morning in this risk off environment.

Although currency markets are operating as usual, it will probably be a quiet trading day for the US dollar with financial markets closed in observance of the Martin Luther King Jr. holiday.

The Euro was on the back foot for the most part last week. It was further undermined by the release of weaker than expected European data on Thursday and Friday including Final CPI and Current Account. German producer price index has also been released in European session, and just like the data last week, printed weaker than expected at -0.4 percent vs. -0.1 percent.

It’s a busy week this week for European economic data with German ZEW, European-wide Flash Manufacturing and Services PMI and the ECB monetary policy announcement and press conference all due. With important Brexit developments in the cards, we could see some increased volatility in the EUR/USD pair through the week.

The British Pound fell versus the US dollar on Friday as investors re-positioned in anticipation of potential negative Brexit headlines in the weekend papers. The GBP/USD pair has traded within a flat range since markets opened this morning. In terms of getting any deal across the line, PM May is said to be seeking to convince various Brexiteers within her own party as well as DUP MPs by asking EU members for assurances, or better, on the Irish backstop. It’s thought that cross party talks would be a waste of time, with Labour MPs unlikely to support a “Tory” deal and/or keen to pin some blame in the future.

The Australian dollar descended against a stronger Greenback on Friday and we saw the pair dragged back under the 0.7200 handle. The US dollar index rose thanks to a lift in investor sentiment on hopes of progress on US-Chinese trade tensions; a news report that China had offered to reduce its trade surplus with the US to zero by 2024 was welcomed by traders.

The release of weaker than expected Chinese GDP over the weekend has put further selling pressure on the Aussie dollar overnight and in this morning.

The NZD/USD has struggled to mount any significant upward momentum through the last 2 weeks as market demand for risk continues to ebb and flow on broader global trade and performance concerns. Weaker than expected Chinese GDP is proof of this, with the Kiwi falling again overnight in response to the news.

Kiwi traders will now likely be turning their attention to Wednesday’s CPI print. Analysts expect inflation to fall short of the RBNZ 2 percent midpoint. A soft read may prompt the RBNZ to consider a move away from neutral and bring forward a rate cut in a bid to stimulate activity and price pressures in an otherwise stagnant economic environment. While risk demand continues to struggle in mounting momentum, the NZD will likely meet resistance on moves approaching 0.6850.