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US dollar gains momentum with better than expected output numbers

By OFX

The US dollar rallied yesterday as the delayed Q4 GDP print beat expectations. The economy was seen to grow at an annualized 2.6 percent, down from the third quarter's 3.4 percent and better than estimates of around 2.2 percent. The Commerce Department estimates that approximately 0.1 percent of growth was knocked off by the government shutdown. However, it is likely that Q1 2019 is where most of the damage will be done.

The EUR/USD pair rose to around 1.1420 and then fell on the news towards 1.1359, with the USD/JPY pushing up from around 110.80 towards 112.00 at the time of this writing.

Late Thursday, US Treasury Secretary Steven Mnuchin commented on the state of the economy. He said that that the US economic outlook was robust. He warned that there was still some work to do with regards to a trade deal with China.

The monthly Chicago PMI was also released, which is a monthly health check of the economy in the Chicago area. This posted a very healthy 64.7, up from last month’s 56.7.

The Loonie is getting hammered this morning after lower than expected output numbers. According to Statistics Canada, real GDP in Canada contracted by 0.1 percent on a monthly basis in December and dragged the annual growth rate for Q4 down to 0.4 percent from 2 percent and missed the market expectation of 1.2 percent by a wide margin.

The USD/CAD was initially trading at 1.3130 after a robust crude oil WTI price action in overnight trading. It was priced in the mid 57s. However, the currency pair slightly increased to the mid 1.3100s, then, a few minutes before the release of the GDP numbers, it rose to 1.3200. At the time of this writing, it is trading at 1.3225, a 0.50 percent increase.

From a technical perspective, as mentioned in the daily commentary yesterday, the USD/CAD continued having a consolidation between 1.3125 and 1.3175, even early today. However, fundamentals confirmed that the technical uptrend is still intact. The USD/CAD popped more than 100 pips within only a few minutes.



There was little European data yesterday. However, a Reuters poll of economists showed that virtually all expect no change in policy from the European Central Bank next week at its monetary policy meeting. They were also evenly split over whether benchmark rates would be raised this year or next. Given the recent slowdown in the Eurozone, a lot expect the bank to re-launch its cheap loans program (Targeted Long-Term Refinancing Operations) in the next few months.

The EUR/USD pair is trading at 1.1381, a 0.10 percent increase, with market participants looking to a series of European PMI's.

The GBP/USD pair open lower this morning as the dollar has firmed across the board. In Brexit related news, Jacob Rees-Mogg has written an article in the Daily Mail stating that he will accept the backstop in its current form outlined in Prime Minister Theresa May’s withdrawal agreement if there is a clause that it expires before the next general election, which is scheduled for 2022. Meanwhile, May is continuing to negotiate in Brussels to get some concession regarding the Irish border that will win over Eurosceptics in parliament. With all this going, the Cable trades at around 1.3233, or 0.22 percent lower.

The AUD/USD was lower in yesterday’s trading session, despite an uptick in Asian equities and the release of better than expected China Manufacturing PMI. It was owing to the stronger USD, itself a direct result of the better than expected US GDP. However, this morning, the AUD/USD pair is trading at 0.7107, an increase of 0.18 percent.



The NZD/USD pair has traded a very narrow range compared with two days ago, following the release of stronger than expected US GDP yesterday. Investors will continue to look to US data into the end of the week for direction, but it may well be a quiet finish for the Kiwi. It is trading at 0.6830 at the time of this writing, 0.35 percent higher.