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The Loonie faces a reality check, mostly due to global factors.

Friday 22 March, 2019

Daily Currency Update

The Loonie finally showed its real face, falling for two consecutive days. This morning we had important economic data. In the first place, the consumer price index (CPI) came in at 1.5 percent on a year-over-year basis in February, versus a 1.4 percent increase in January. Also, excluding gasoline, the CPI rose 2.1 percent, matching the gain in January. In the second place, retail sales decreased for the third consecutive month, declining 0.3 percent to CAD$ 50.1 billion in January. Sales were down in 4 of 11 subsectors, representing 52 percent of retail trade. It is difficult to assume that CPI data is influencing the Loonie negatively because it should have pushed the Loonie in the opposite direction. However, we can assume that retail numbers are confirming the weakness in the Loonie. The USD/CAD moved in a 44 pips range this morning (a high of 1.3427 and a low of 1.3383) after the release of CPI and retails numbers, but it is staying within this range; it is still trading at 1.3400 handle at the time of this writing. It is important to notice that the correlation of the Loonie with crude oil has disappeared this week, so market participants are more focused on fundamental factors when they trade the Loonie. For today’s trading session, both technically speaking and given the “risk off” environment, the USD/CAD has a support of 1.3380, but it might test some resistance levels. It is critical to watch 1.3443, but first 1.3420. Of course any mood change in the FX markets might change the support and resistance levels drastically.

Key Movers

The US dollar index continues to rise strongly for a second day after it started to fall on March 8th. One of the reasons, you guessed it, is the US-China trade issue. President Donald Trump has mentioned that he wants an agreement between the US-China that is enforced, not one that is immediate. The quid pro quo over whether a trade deal between the US-China is imminent continues with American officials minimizing the possibility of a breakthrough soon. The US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will travel to Beijing for meetings at the end of next week with the goal of reaching an agreement after the Chinese Vice Premier Liu He's trip to Washington in April. The other reason for a stronger US dollar this morning was the flash PMI data. For example, the downturn in Germany’s manufacturing sector has become more rooted with March’s flash data showing accelerated deterioration in exports, new orders, and production. In summary, when the rest of the world does terribly economically, the US dollar increases in price. The EUR/USD pair fell 0.9 percent, from 1.1391 to 1.1289 in only 45 minutes this morning.
The EUR/USD pair couldn’t quite make the breakthrough 1.1450 on the back of the FOMC announcement. It’s fallen back this morning, trading at 1.1385, which represent a 0.54 percent fall, in a typical “sell the facts” mode after the dovish message from the Fed.
A lot of the action in currency markets came yesterday evening as the US FOMC made their monetary policy announcement (please see the daily commentary in the US for a more detailed explanation). The statement was more dovish than the market was expecting. The GBP/USD fell to an intraday low of 1.3106; it didn’t hold on for too long as Theresa May blamed the delay to Brexit on MPs. Earlier, the PM wrote to the EU requesting a delay to Brexit until 30 June, permission of which is likely to be granted, but a short extension isn’t music to the ears of market participants. In another news yesterday, headline UK inflation data printed slightly stronger than expected at 1.9 percent year to year versus 1.8 percent, but it was shrugged off by a market more interested in Brexit developments and the FOMC decision. The Bank of England kept its interest rate on hold at 0.75, as expected, this morning.
The Australian dollar jumped through trade on Wednesday, extending moves beyond 0.7100 to touch intraday highs at 0.7169 and close the session as one of the day’s best performers. Having offered little throughout the domestic session the AUD was buoyed by a dovish FOMC policy statement. The Fed fell in line with market expectations, announcing it does not intend to raise interest rates again this year. Australian employment data then printed better than market forecasts overnight, sending the AUD higher again. At the time of this writing it is trading at 0.7125, representing a 0.16 percent increase.
The NZD/USD pair jumped through 0.6900 handle on the back of the FOMC yesterday evening, then fell back on profit-taking. However, the Kiwi then rallied again following the release of better than expected NZ GDP overnight; it printed bang in line with expectations at 0.6 percent quarter to quarter but makes the possibility of an RBNZ rate cut a less of an option, at least in the near term. The NZD/USD pair is trading at 0.6894 this morning, representing a 0.6893 increase.

Expected Ranges

  • USD/CAD: 1.3380 - 1.3443 ▲
  • CAD/EUR: 0.6568 - 0.6600 ▼
  • CAD/GBP: 0.5690 - 0.5751 ▲
  • CAD/AUD: 1.0535 - 1.0585 ▼
  • CAD/NZD: 1.0838 - 1.0890 ▼