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USD / CAD - Canadian dollar is everyone’s sweetheart

- Loonie probing major resistance area.

- US dollar on the defensive ahead of January inflation data.

- US dollar modestly lower in overnight trading-GBP outperforms.

USDCAD snapshot open 1.3342-46, overnight range 1.3330-1.3352, close 1.3331, WTI $78.93, Gold $1859.63

The Canadian dollar is seeing the love on Valentines Day and is at a two-week peak.

The Canadian dollar rally started immediately following the blow-out Canadian employment report on Friday and it managed to hang on to those gains. The surprisingly sharp increase in jobs for the second consecutive month may force the Bank of Canada to admit that announcing a pause in hiking rates was a mistake.

As usual, the Canadian dollar gains were also fueled by a wave of US dollar selling against the other major G-10 currencies. The US dollar retreated after the Feb 1 FOMC meeting, when Fed Chair Powell failed to push back against the market view that rate hikes would end sooner than expected. The view was further inflamed when Mr Powell spoke of “disinflation” signs.

Equity and FX traders are expecting a dovish January inflation report. CPI is expected at 6.2% y/y, down from 6.5% y/y in December while Core-CPI is forecast to slide to 5.5% y/y from 5.7%.

Those estimates may be out to lunch because the Bureau of Labor Statistics (BLS) has tweaked the methodology for calculating CPI. The BLS is now updating spending weights on an annual basis using data from a single year. It differs from the previous methodology which used two years of spending data to update weights, every two years. In addition, the have changed the methodology for calculating new vehicle prices. Lots of room for errors there!

The latest positioning suggests that a higher-than-expected inflation print will sink stock and boost the greenback far more than an “as expected” result.

EURUSD traded in a 1.0723 to 1.0766., supported by Q4 GDP rising 0.1% q/q while employment rose by 0.4%.

GBPUSD is bullish and is at the top of its 1.2136-1.2207 range. Better than forecast UK wage data and broad US dollar weakness boosted prices.

USDJPY chopped in a 131.80-132.45 range after the Japanese government nominated Kazua Ueda for Bank of Japan governor.

AUDUSD drifted in a 0.6951-0.6975 range underpinned by hawkish RBA expectations.