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The Loonie is trading sideways this week amid a better mood in the markets and deteriorating local fundamentals.

Isaac Figueroa

Yesterday, the Loonie had a rally of 0.19 percent versus the US dollar along with Canadian and American equity markets. Both were led higher by crude oil WTI, which traded above 60 US dollars. The Loonie rose, despite the increase of the US dollar index by 0.3 percent, which was helped by a weaker Euro that traded below Friday’s close of 1.1270. However, as we head into the end of the month/quarter of corporate demand for the US dollar, there might be some pressure on the Loonie.

Negative pressure came to the Loonie this morning. The USD/CAD pair is trading at 1.3412, representing a 0.24 percent increase (weaker Loonie). With the lack of economic data, the only factor to consider is crude oil, but, at this moment, it is trading at the same level where it closed yesterday. There was, however, a report from Bloomberg published yesterday saying that household debt in Canada has reached levels that could be qualified as excessive. The report shows that Canadians owe CAD 2.16 trillion, which is the highest debt load in the Group of Seven economies as a share of gross domestic product.

Technically speaking, the USD/CAD rate seems stuck from last Thursday between the 1.3340 and 1.3443 levels. Other resistance and support levels to watch once the USD/CAD picks a direction are the previous top on March 7th at 1.3467 and an important support around 1.3300 handle.

The US dollar index had a positive day in yesterday’s trading session. One of the reasons is probably the lack of news about the meeting between Trump and Xi Jinping. On top of that, Trump told Republican lawmakers that he wouldn’t settle for anything less than an “excellent deal.” However, Trump’s top trade negotiator, Robert Lighthizer, and Treasury Secretary, Steven Mnuchin, are due to continue the trade talks in China tomorrow. Right after that, in the following week, China’s Vice Premier, Liu He, is anticipated to arrive in the US.

To add more to the noise around the US dollar, Stephen Moore, a Trump nominee to serve on the Fed Board, has said that the Fed should cut rates by 50 points now, adding that the December hike was "inexplicable." Furthermore, San Francisco Fed Chief Mary Daly urged patience before deciding which way to move, saying literally, “…Patience is where I’m at right now,” in yesterday’s declaration.

There is not much in terms of critical economic data today, but there will be an appearance from Kansas City Fed President Esther George after the FX market close (around 5:00 pm Est). She is known to be “Hawkish,” so it will be interesting to see the contrast of her declaration compared with Daly and Moore’s.

There is very little to report on for the Euro during yesterday’s session, but heavy selling pressure persists for the shared currency. The poor performance is highly correlated to mounting fears of a local economic downturn, exacerbated lately by disappointing German macroeconomic data. The Euro was at the mercy of external events for price action most of the day. The EUR/USD pair broke through 1.1275 level, and it is trading at 1.1256 at the time of this writing.

On the central bank front, several ECB officials are due to speak at the annual ECB watchers' conference today, which has the potential to move markets.

Brexit developments were dealt with some fresh optimism during the early morning trade yesterday. Tory member and ERG (European Research Group) Chair, Jacob Rees-Mogg, conveyed his support to the British PM Theresa May’s Brexit plan over twitter. He feels any alternative to May’s deal will be a ‘soft’ Brexit so alluded to him favoring the deal on the table. Market reaction was positive, and Sterling moved higher across the board but I’m sure we have learned by now a new day brings new risks when it comes to this subject. The DUP, a key player in getting the deal across the line, has yet to offer their full support so still, it appears incredibly unlikely MV3 will pass if put to vote.

Today we have yet another round of indicative votes to try and see if there is a path that the majority of government would likely support. Remember, the indicative Brexit votes are not legally binding, and we do not know how the EU will respond, although EU leaders will probably welcome a softer stance. This, however, will likely require a longer extension to negotiate. There is still a risk an overall majority will not be evident in the votes and its back to the drawing board or bringing Mays deal back to the vote on Thursday or Friday.

The GBP/USD pair trades at 1.3205, showing no change compared with yesterday’s close.

Its been a quiet session for the Aussie overnight with little to report on. RBA Assistant Governor Ellis addressed members of the Housing Industry Association. As widely expected there was little to note from the speech other than a repeat of the RBA’s much-touted “wait and see” approach while also highlighting improvements in the Australian labour market.

The AUD/USD pair moved lower, breaking support of a short-term uptrend that started on March 24th. It was trading at 0.7140 in the North American session yesterday, and at the time of this writing, it is trading at 0.7085.

The domestic calendar is set to add as little value today as it did yesterday with only RBA Assistant Governor Kent’s panel appearance set to drive momentum.

The New Zealand Dollar took a tumble overnight following the latest rate statement from the RBNZ. We mentioned in recent commentaries this had the potential to be a market mover and it didn’t disappoint. While the rate was held at 1.75 percent, it was the statement that followed that prompted the move. The country's central bank blindsided markets by saying the next step in interest rates would likely be down, abandoning its long-standing neutral stance. The NZD/USD pair plunged from 0.6914 towards 0.6793, representing a decrease of over 1.5 percent. The next event for the Kiwi is the ANZ Business confidence due out this evening.