Daily Currency Update

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The Canadian Dollar traders are looking to Employment Figures released this Friday for a sustainable direction.

Isaac Figueroa

The Canadian dollar extended its downward dip through trade on Tuesday edging marginally lower and testing supports at 0.76 (1.3160) as investors attentions turned to President Trump’s State of the Union address. With little domestic data on hand to drive direction, the Loonie succumbed to more extensive market flows and a broad USD upturn.

As a leading performer through the year to date, the CAD has met resistance on moves approaching 0.7650 (1.3068), while correction in oil prices has prompted profit-taking. With risk appetite improving on renewed optimism surrounding trade pressures (led by the US and China) market demand for commodity-driven units and emerging market currencies has strengthened. The CAD remains well supported through the short term as reaction from last night’s State of the Union address showed hope Trump would proffer guidance on US trade policy and US/China trade talks. Positive rhetoric and signals on a deal that is nearing completion could help bolster demand for the export-driven Canadian dollar, prompting a move to key long term resistance handles at 0.7670 (1.3037).

US President, Donald Trump delivered his State of the Union address to Congress last night with the significant takeaway the confirmation that Trump is set for another face to face meeting with North Korean leader, Kim Jong-un in Vietnam at the end of the month. The President took time to criticize ongoing investigations into his election campaign as well as reiterating his intention to build a security wall along the Mexican border, although he stopped short of confirming he would be invoking emergency measures entitled to him as President to get it built. The dollar lost some ground against the yen and euro on the speech however the moves were relatively muted as much of the content was expected by the markets. Data-wise yesterday saw a miss for the monthly ISM Non-Manufacturing PMI which posted 56.7 lower than the 57.2 penciled in by analysts. EUR/USD is just under 1.14 with USD/JPY at 109.60 ahead of a data-thin day from the States and a risk-off environment globally.

The Euro followed the trend of the week, retreating yet again against its US counterpart to open this morning at 1.1386. The Euro found itself whittled lower as multiple PMI reports from across the Eurozone checked in, despite a poorer reading from the US ISM PMI report.

PMI reports eased further in January, reaching its lowest level since 2014 and undermining the Euro. These leading indicators added fuel to estimates that quarterly eurozone growth is on pace to hit just 0.1% q/q for Q1 19. With the ECB acknowledging the persistent weak data and global uncertainty, the ECB is firmly in assessing mode ahead of their March meeting. The market, in turn, has devalued the euro in light of the further evidence that the Eurozone may be moving towards a recession.

Wednesday looks to be another quiet day on the economic calendar with only the reaction to President Trump’s state of the Union speech looking to drive markets.

The Great British Pound fell through trade on Tuesday, moving back below 1.30 as the undercurrent of Brexit uncertainty forced a break below key short term supports. Having tested 1.31 on Monday the Pound met a wave of selling pressure following a slow down in growth across the services sector. January PMI’s fell forcing employment and new business indices to contract falling below 50 for the first time since the Brexit vote. The poor print signals a slow start to the year, posing downside risks to the growth outlook and highlighting the uncertainty facing key sectors of the British economy.

Sterling fell through the 200 day moving average at 1.3037 prompting a further sell-off as institutional investor orders triggered forcing the pound below 1.30 and triggering a move toward intraday lows at 1.2928.

With little of note on the domestic docket today, attentions turn to the BoE’s monthly monetary policy meeting. We anticipate the MPC to leave rates on hold, while proffering a broadly non-committal statement, pointing to the vagaries of the current Brexit process and its clouded outcome. With key Parliamentary votes scheduled next week, we anticipate the GBP to fluctuate on headline news with upside limited to moves approaching 1.31.

It was a rollercoaster ride for the Australian Dollar yesterday thanks to local macroeconomic data released locally. The AUD/USD opened around the 0.7225 level but quickly sold off to a low of 0.7193 as Retail Sales numbers for December showed it’s biggest decline in twelve months. Sales dropped 0.4% and left the annual growth rate below the long-run average and steady at 2.8%. Meanwhile, trade surplus widened to 3.68B, beating the forecasted rise to 2.3B from the November figure. The uptick in excess, however, is primarily driven by a 6 percent drop in imports. Imports were down 0.9% in the year, the first annual decline in over two years. Exports overall were also weaker in December, falling 1.6%. The annual pace of growth, however, remained firm at 16.2%, reflecting resilience in prices of most commodities.

The Reserve Bank of Australia left the cash rate on hold at 1.5% as expected, in the statement sounded less dovish than expected and maintained a somewhat optimistic view on the economy. The RBA indicated that it downgraded its GDP growth forecasts for 2019 from 3.25% previously to around 3% amid falling house prices in Australia and uncertainty over household spending.

The New Zealand Dollar opened yesterday morning at 0.6883 and traded in a tight traded range as liquidity remains light in the market. Both China and New Zealand observes public holidays today as Intraday highs of 0.6906 were seen overnight. ANZ World Commodity Prices lifted 2.1% m/m with dairy and meat prices being the main contributors.

This evening sees the release of the latest dairy products sold at auction as the New Zealand Dollar opens this morning at 0.6890.