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Poloz’s speech today will provide more insight into the BoC rate decision in thirteen days.

Isaac Figueroa

The USD/CAD pair has continued to fall (strong Loonie). At one point during yesterday’s trading session, it fell almost 0.5 percent. At the time of this writing, the USD/CAD pair is trading at 1.3163 and, technically speaking, it might fall towards the low 1.3100s in the next two trading sessions of this week.

This morning, after many days with an absence of economic data, wholesale trade sales data for December was released, which came in at 0.3 percent versus the expected number of -0.3, much better than expected.

Later today, more information will flow into the news when Bank of Canada Governor Stephen Poloz provides a speech in Montreal at 12:45 pm EST, 13 days before his Bank of Canada rate decision. Market participants will be looking for the narrative on whether he will follow the Fed toward a more dovish angle on monetary policy. As written in past daily commentaries, Poloz has signaled he is in no rush; however, he has cemented messaging that more interest rate hikes will eventually happen. Moreover, given the recent strengthening of the Loonie, a further hike in Canadian rates is now considered more assertive than the Fed, which is signaling a firmer pause on policy action.

The US dollar index fell for a sixth straight session as trade optimism continues high. This morning, the US dollar fell 0.1 percent as negotiators in Washington work on multiple memorandums covering agriculture, non-tariff barriers, services, technology transfer, and IP, which would all together form the basis of a closing trade deal between the US and China. Liu He, China’s chief negotiator, is expected to meet with US President Donald Trump tomorrow as efforts continue to extend the current March 1st deadline to allow for more talks. Regarding the US – EU trade relationship, it seems that Trump and the EU are still far from a deal to avert the tariffs threatened on European cars. Will this be the next problem for the US dollar?

From a monetary policy perspective, the US dollar was affected by the minutes from the Federal Reserve's December policy meeting, which back the trend of a continued retreat from tightening monetary policy highlighted yesterday. The FOMC meeting minutes included 13 mentions of the word "patient," and according to the minutes, there were a, "…variety of considerations that supported a patient approach." The minutes did show the Fed's policymakers divided between two positions, but those appear to be “dovish” and “more dovish.” The minutes also showed that FOMC members mostly agreed that the balance sheet rundown is likely to end in the second half of 2019.

On the data release side, new orders for the key US - made capital goods suddenly fell in December amid declining demand for machinery and primary metals. Overall orders for durable goods, items ranging from microwaves to airplanes that are meant to last three years or more, increased 1.2 percent in December versus the 1.7 percent expected; this is putting more pressure on the US dollar this morning.

The Eurozone’s monthly health check has seen mixed results illustrating an economy that is suffering from anemic growth as a result of global trade tensions. The monthly PMI surveys showed better than expected results for manufacturing and services in France; however, the main takeaway was Germany’s poor manufacturing print of 47.6. The number is some distance into contractionary territory and the surveys worst reading since December 2012. This afternoon sees the minutes of the latest ECB policy decision released with the conversations likely to show no change in rates is in the cards anytime soon. The EUR/USD pair is trading at 1.1364 at the time of this writing.

Regarding likely “trade wars,” according to BofAML, the most likely scenario for the auto tariffs will likely be strong threats - particularly against Europe – but not actual tariffs.

The GBP/USD pair has managed to keep its head above the 1.3000 handle this morning, and it is flirting with the 1.31 handle, trading at 1.3082 at the time of this writing as the likelihood of an extension to Article 50 being requested by the UK government grows. The official line from the EU remains that there will be no changes to the “backstop” element of the withdrawal agreement however given the recent economic woes encountered by the Eurozone, there could be some movement on the issue to stop the bloc dropping into a no-deal induced recession. UK PM Theresa May’s meeting with EU Commissioner, Jean-Claude Juncker reportedly saw some progress being made on the issue however no concrete news has been reported. Back in Westminster three Tory MPs have left the party in protest at the handling of Brexit. Anna Sourbry, Sarah Wollaston and Heidi Allen have joined the eight Labour MPs who renounced party membership earlier in the week to stand as independents.

There was another top tier data release from Australia overnight with its unemployment level holding steady as expected at 5 percent. However, the gains were quickly unwound as one of the country’s biggest banks, Westpac's Bill Evans announced it expected the Reserve Bank of Australia to cut rates twice this year. A few hours later the Aussie dollar took another leg lower as it was announced China had decided to ban coal imports from Australia through its Dalian port network. After peaking around 0.7207, the AUD/USD pair is back down to the 0.7100 handle, touching an intraday low of 0.7086 and with a bearish outlook technically speaking. The only piece of positive data, adding 65,400 full-time positions were irrelevant for the Aussie dollar.

The Aussie’s coal-fueled fall dragged its counterpart across the Tasman Sea down with it as the Kiwi suffered on China’s latest trade offensive. Further developments regarding global trade will dictate NZD’s direction for the rest of the week as there is little on the calendar domestically. The NZD/USD pair trades at 0.6822 at the time of this writing, falling 0.50 percent. Many market participants shorted the Kiwi in sympathy with moves in the Aussie dollar.