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Canadian dollar strength has some analysts signalling that the currency has been overbought.

Isaac Figueroa

Friday saw the Canadian dollar soar to its highest level in nearly 3 months when valued against its US counterpart. Rising oil prices and improving US-China trade sentiment were the primary drivers, forcing the USD/CAD to 1.3089 on the day. Oil prices benefited from supply-side pressures, as production cuts and US sanctions on Venezuelan exports constrained supply. The Canadian dollar strength has led some analysts to suggest the currency has been overbought. Tomorrow we have Canadian housing figures and Fridays jobs market data for an indication on how the domestic economy is performing.

The US dollar edged marginally lower through trade on Friday, slipping on data that showed wage growth slowed through January. Despite a strong surge in job creation (highest print in 11 months) investors increased sensitivity to wage and price inflation forestalled the Greenbacks upward advance as average hourly earnings grew just one-tenth of a percent, well below the 0.3% anticipated. The miss reinforces the Federal Reserve’s patient stance and further reduces the likelihood the FOMC will cut rates this year.

Investors are now shorting recent USD longs on expectations the worlds base currency will fall throughout the coming months as markets and analysts continue to adjust monetary policy expectations. The shift in Fed rhetoric validates market calls the central bank will not hike rates this year and reduces the likelihood of a near term correction for the USD.

Confidence in the Eurozone and the Euro is still suffering, and Friday’s data struggled to set the market a light. The only glimmer of hope could come from the fact that core inflation for the whole Eurozone picked up to a whopping 1.1%. This week may not be much better though with retail sales expected to suffer as a result of the hectic Black Friday deals in November.

The government will wake up this morning to the unfortunate news that Nissan has decided to produce one of its newest lines in Japan instead of Sunderland. Meanwhile, Downing Street is determined to create a cross Brexit working group to create a unified approach to the Irish Backstop before Theresa May goes back to Brussels to renegotiate the date of which has still not been set. In some welcome news, however, the annual MP conference in Saint Anton (February half term) has been canceled as the worryingly large pile of legislation required to leave the EU builds up. With the lack of actual Brexit developments the pound suffered last week with the focus back on fundamentals; manufacturing PMI dropped on Friday. Services data and construction data follows suit at the start of the week, and if again Brexit doesn’t dominate headlines these data releases should prove significant.

The Australian Dollar initially dipped vs the Greenback a little at the start of last week and hovered just under 72c gaining momentum on Thursday with the US Fed softening their stance on monetary policy. Friday, we opened around 0.7265, saw a high of 0.7284 and a low of 0.7236. A release of economic data had mixed feelings amongst the market, dwelling prices across the capital cities fell by 1.2% in January and by 6.9% in the year to January with every capital city seeing a fall apart from Canberra. Meanwhile, The AiG performance of manufacturing index rose from 50.0 in December to 52.5 in January, indicating a slight pickup in manufacturing activity back to expansion.

The New Zealand Dollar tested 1-month highs on Friday evening in the lead up to Non-Farm employment figures released in the United States. Opening at 0.6915 the NZD/USD moved sideways during the domestic session as there was little to note domestically. Intraday highs re-tested Thursday mark of 0.6940 before the greenback finished stronger to end the week.

Non-Farm employment figures spurred the US Dollar to stronger levels despite the unemployment rate ticking higher to 4.0% for the first time since July 2018. 304,000 jobs were added for January, soaring from its forecasts of 179,000.

The Kiwi closed just below support levels of 69 US cents as we see a light week of macroeconomic data on the domestic front. The latest GlobalDairyTrade auction is scheduled for release on Wednesday evening.