Daily Currency Update

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The US dollar is trading higher this morning after stronger CPI numbers suggesting an increase in inflation


Yesterday, the US dollar slid almost 0.4 percent after a potential shutdown/border wall deal was reached. The agreement gives Trump the perfect opportunity to de-escalate and separate economics from politics. The previous shutdown was a near miss economically and was costly in terms of the slide in his poll. By signing the deal, Trump will avoid the negative economic repercussions of another shutdown, while retaining the political leverage to label the Democrats soft on border security and claiming a win over Pelosi, who previously said ‘not one dime’ to the wall. Trump may reluctantly sign the congressional border-security deal very soon.

Additionally, President Trump said he is open to extending the March 1st deadline to raise tariffs on Chinese imports if both sides are close to an agreement by the end of the month. China’s President Xi Jinping is set to meet key members of the U.S. delegation currently in Beijing for high-level talks on Friday, according to Chinese media. The White House still wants a meeting between the two leaders to seal any trade deal, the timing of which would depend on progress made this week, and whether Trump extends the deadline.

Furthermore, the Fed’s Powell also spoke, but didn’t say anything to surprise traders – he only reaffirmed that the Fed would leave monetary policy on hold for the foreseeable. The last bullish news for the US dollar is stronger than expected US inflation numbers; the CPI year to year in January came in at 1.6 percent versus 1.5 percent expected, and CPI ex-food and energy year to year in January came in at 2.2 percent versus 2.1 percent expected.

The Loonie was supported by a robust crude oil WTI price, a weak US dollar and a strong equity market in yesterday’s trading session. The fact that Trump said he is open to extending the March 1st deadline to raise tariffs on Chinese imports if both sides are close to an agreement by the end of the month was taken positively by market participants. However, nobody knows what will happen; a possible extension with little sign of meaningful progress may now be a disappointment, especially for the close to three-fifths of market participants expecting a narrow deal, according to a Bank of America Merrill Lynch survey. So far, this trade war between China and the US does not bode well for the export cycle, especially for Canadian manufacturers, which has limited visibility for exporters at a time when inventories are high and global demand weak.

Technically speaking, the USD/CAD pair found strong support at the 1.3200 handle in yesterday’s session. However, after testing 1.3196 last night in the Asian trading session, it bounced strongly, along with the US dollar index. The good part for the Loonie bulls is that it has not breached yesterday morning’s 10:30am high of 1.3274. The USD/CAD pair is trading at 1.3246, and it is waiting for the crude oil WTI price to pick a direction amid lack of essential releases for the Canadian economy this week.

The EUR/USD pair had pushed slowly higher over in yesterday’ trading session against a backdrop of a weakening Greenback. There hasn’t been any data released in the last day that’s been worthy of mention, although Brexit remains in focus and traders will be looking to German Prelim GDP tomorrow for direction.

Risk sentiment has turned mildly more positive over the last 24 hours on hopes that US-Sino trade talks will yield some positive results by the end of the week. The GBP/USD pair is trading flat this morning at 1.2887.

In other news, BoE Governor Carney spoke yesterday and warned of a no-deal ‘economic shock.’ He said “a no-deal would be an economic shock for this country, and this would send a signal globally about re-founding globalization. That would be unfortunate.” It wasn’t anything traders hadn’t heard before and was largely shrugged off.

The AUD/USD pair, like EUR/USD, traded higher yesterday as the Greenback was offered throughout the day. The currency was also dragged higher by a well-bid Kiwi dollar. If the US-China talks progress positively over the next few days, we could well see further upside in AUD/USD. The AUD/USD pair is trading 0.14 percent higher, at 0.7105 at the time of this writing.

The NZD/USD pair gapped higher overnight after the RBNZ delivered its monetary policy statement. The central bank was less dovish than many traders were expecting, stating that they expected the OCR to remain at 1.75 percent through 2019 and 2020. A squeeze on short Kiwi positions ensued, and NZD/USD rallied from 0.6725 to 0.6850. The Kiwi is stronger across the board. The NZD/USD pair is trading 1.1 percent higher, at 0.6809 at the time of this writing.