BOC Uncertainty Works into Loonie Picture

The Canadian dollar traded back against its U.S. counterpart, to levels at which it closed in the North American session yesterday, after bouncing off 100 DMA in the Asian session last night. There is unprecedented optimism that the Bank of Canada will need to tighten this year based on growth. There remains too much uncertainty for the BOC with regards to the U.S. President-Elect's mandate and China's yuan protectionism program for Governor Stephen Poloz to react at this time; Poloz has said the BOC is watching and will respond when needed. Uncertainty always brings volatility, and investors expected this to be the case for the first quarter of 2017 within a broader range of $1.3000 to $1.3800 and a consolidated range of $1.3200 to $1.3500 Canadian for the U.S. dollar.

The euro continues to trade higher today as Purchasing Managers Index data for Germany and France were both better than expected. However, the euro remains vulnerable to the downside. Models for fair value implies an equilibrium rate of $1.0167 Canadian so the euro-U.S.-dollar pair is trading well above its fair value at the current rate. Technical indicators are also warning of a top at this level.

The pound sterling continues to consolidate against its G10 currency pairs over the past week. The U.K. currency failed to move higher after Service PMI posted considerable expansion posting a figure of 56.2 vs. expectations of 54.8 which was forecast slightly below previous of 55.2. Data suggests that the U.K. economy is holding up well, yet the pound does not seem to be benefiting, more likely clouded by Brexit.

The Australian dollar continues to trade higher as the markets continues to focus on China. Their recent efforts to support the yuan appears to be succeeding. On the data front, domestic risk will be from the Trade balance data at 7:30 pm EST.

Oil (WTI): $53.63

Gold: $1,177.25

Silver: $16.59

Dollar Index: 102.01

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