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The Loonie was the second-best performer last week after the British Pound.

Isaac Figueroa

The Loonie was the second-best performer of the major currencies after the British Pound last week. The Canadian Dollar rose on Friday when retail sales (sales at Canadian retail outlets) came in at -0.1 percent month to month in December when the expectation was for -0.3. Also, the softness of the US dollar expanded oil prices, which, at the same time, backed the Loonie.

The Loonie consolidated its gains when the USD/CAD pair fell 120 pips and when BoC Governor Stephen Poloz defended the five rate increases since mid-2017, citing two reasons why there has been a rate hold since October last year: the impact of higher rates on indebted consumers; and, risks to the investment outlook. Poloz said that they would need to move their policy rates up into a neutral range over time, but the BoC is “highly uncertain” about the timing due to lingering questions around housing and investments. Poloz continues saying that they will evaluate new economic data and use judgment, which adds to his efforts to inject more ambiguity. There is almost unanimity that at least one more increase is likely at some point this year. The next rate decision is March 6th.

Technically speaking, the USD/CAD pair has a very strong support at around 1.3125, which is part of the uptrend coming from February 2018. At the time of this writing, the USD/CAD is trading at 1.3150, which is a pivot point, and it infers a technical support of 1.3125 and a technical resistance of 1.3195 for today. The next key data release will be the CPI numbers, which will be released on Wednesday.

The US dollar ended the last week weaker against major currencies. The exception was on Thursday when the Greenback was higher despite disappointing data. The weakness of the US dollar came before president Trump’s statement on Sunday that he would delay a planned increase in tariffs on Chinese goods. As a consequence, the US dollar fell, and global equities rallied due to alleviated concerns of global economic growth in the coming months. Also, the Chinese Yuan continues to increase against the US dollar after the news, hitting its strongest rate level since July 2018.

Trump also said that he plans to meet China’s President Xi Jinping next month while offering few specifics such as the date or how long he’s going to let the tariff deadline slide. The question now is how low the US dollar can go because of the “risk on” environment and given that Trump has only delayed new tariffs but hasn’t reached a trade agreement yet.

Analysts will be closely watching economic headlines with Fed Chair Jerome Powell’s two testimonies in Washington. He appears before the Senate Banking Committee on Tuesday and then at a House committee on Wednesday for the semiannual testimony. Furthermore, there will be new economic data this week, including consumer confidence, gross domestic product, and manufacturing numbers. A few minutes ago, the Chicago Fed National Activity Index for January came in at -0.43 when it previously was printed at +0.27. Later today, wholesale inventories data for December is due at 10:00 am EST.

Friday's inflation figures from the Eurozone are this week’s big event with the overall CPI expected to tick up to 1.5 percent from 1.4 percent and the core level, which strips out food, fuel, alcohol, and tobacco, is expecting to hold steady at 1.1 percent. Holders of the shared currency will still be reflecting on last week’s woeful German Manufacturing PMI, which posted its worst number since Dec 2012. The 47.6 seen follows on from the previous month’s 49.7, as the German economy continues to struggle with a slowdown in China. The EUR/USD pair trades at 1.1351, representing an increase of 0.17 percent.

The British Pound is higher this morning with the GBP/USD approaching the 1.3100 handle level, trading at 1.3075 on the back of ongoing Brexit negotiations between the UK and the EU. As talks between the two sides continue a planned parliamentary vote scheduled for Wednesday, Theresa May’s withdrawal agreement has been pushed back a week as May tries to hammer out a deal that will be palatable for Brexiteer backbenchers. Away from Brexit, we have Bank of England Governor, Mark Carney, discussing the latest BoE Inflation Report with the Treasury Committee tomorrow.

The Aussie dollar is starting this week on the front foot with the AUD/USD up to 0.7181 as positive comments from Trump regarding trade bolster the local dollar. This week’s big event from down under is Wednesday night’s quarterly Private Capital Expenditure figures with an increase of 1.1 percent expected.

The Kiwi dollar caught a bid this morning as Retail Sales numbers from New Zealand are beating expectations, coming in 1.7 percent higher for the quarter. This has helped push NZD/USD higher this morning with extra upward pressure applied by the positive comments from Trump regarding trade. The NSD/USD pair is trading at 0.6891, a 0.69 percent increase.