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Daily Market Brief

US data in focus but may fail to provide boost to the greenback 

(Arnaud Masset, market analyst)

 

A fresh batch of US data is due for release later today. The market is now hungry for any clue signalling an acceleration of the US economy, especially since December's retail sales came in roughly on the soft side last Friday. The headline inflation gauge is expected to have risen 2.1%y/y in December versus 1.7% expected, thanks to a sharp increase in crude oil and food prices (the WTI stabilised above the $50 threshold). On the other hand, the core measure, which excludes the most volatile components such as energy and food, is anticipated to come in unchanged at 2.1%y/y. Industrial production is also expected to have picked up in December with the median forecast surging to +0.6%m/m after a contraction of 0.4% in November. However, it will require more than just wishful thinking to reverse the current negative momentum that began in November 2014. It is true that there have been recent improvements such as the stabilisation of the manufacturing payroll. However, the US dollar's renewed strength should inevitably weigh on the final reading.

 

In the FX market, the USD took a hit yesterday after Donald Trump declared its value was too high. The dollar index slid 1.34%, down to 100.26, as the EUR rose 1%, the GBP surged almost 3% - thanks to Theresa May’s comments - and the JPY was up 1.30%. Nevertheless, the greenback partially reversed losses this morning as traders have been taking profits. We expect the dollar to continue losing ground, especially against higher yielding currencies such as the Aussie and Kiwi as US yields continue to adjust lower.

 

Bank of Canada set to remain on hold 

(Yann Quelenn, market analyst)

 

The Bank of Canada will likely hold its rates unchanged at 0.5% this afternoon. In our view, no major monetary policy change should happen until the second quarter of this year and the BoC will prolong its patient stance which it initiated in 2015 when the BoC cut rates twice.

 

The Canadian economy remains resilient. Inflation is still stalling around 1% y/y. Higher energy prices are adding upside pressures on consumers. However, Canadian exports may be threatened if Trump's border tax passes. Fundamental data is not particularly significant and market activity is somewhat soft. Indeed, the housing bubble has not popped yet, but some cooling has been noticed.

 

In our view, data is clearly not sufficient to trigger any particular change in monetary policy, which is why the BoC should remain on hold particularly as they will need time to understand the real effect of Trump’s presidency.

 

Technically speaking, the USDCAD has been on a bullish trend since May 2016 despite the loonie strengthening in the last week due to the rebound in gold prices.

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Wednesday, 18 Jan, 2017 / 1:05

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