Canadian Dollar Update – Canadian dollar grinding out gains

• BoJ leaves rates unchanged-PM calls election for Feb.8
• US dollar continues to trade defensively.

USDCAD open: 1.3783, overnight range 1.3773-1.3800, close 1.3786, WTI 60.21, Gold 4926.79

The Canadian dollar is consolidating these weeks gains at the top of the range.  The Loonie’s strength is due to improved risk sentiment higher commodity prices,  specifically gold and widespread US dollar selling pressures.

WTI traded firmer in a 59.53-60.22 range and is at the top of that band in NY.

The FOMC meets next Wednesday, and recent US data have given policymakers no reason to contemplate rate cuts.

Equity markets in Asia finished higher overnight. Australia’s ASX 200 added 0.13%, Japan’s Topix gained 0.37%, and Hong Kong’s Hang Seng rose 0.45%.

As of 7:30 am, European markets were trading mixed. France’s CAC-40 was down 0.27%, Germany’s DAX inched up 0.10% and the UK’s FTSE 100 has gained 0.17%. S&P 500 futures are down 0.15%, the US Dollar Index is 98.33, and the 10-year Treasury yield is  4.232%.

EURUSD traded in a 1.1728-1.1759 range after rallying earlier in the session before moving sideways. The pair continues to draw support from easing political tensions between Europe and Trump and from generally constructive Eurozone PMI data. Manufacturing PMI improved to 49.4 from 48.8, the Composite PMI held steady at 51.5, and Services PMI edged lower to 51.9. Intraday momentum remains positive above 1.1700, with a break above 1.1770 opening the door toward 1.1820.

GBPUSD traded in a 1.3483-1.3537 range, advancing after UK Retail Sales surprised to the upside at 2.5% y/y and 0.4% m/m in December. Broad US dollar weakness and supportive technical signals are reinforcing the move, with the break above 1.3510 suggesting scope for a push toward 1.3580.

USDJPY traded in a volatile 157.39-159.23 range as domestic politics and central bank signals collided. The BoJ left its policy rate unchanged at 0.75%, as expected, although one board member dissented in favor of a hike. The initial rally quickly reversed as traders grew wary of potential intervention. The accompanying statement was interpreted as leaning hawkish and consistent with higher rates ahead. Political uncertainty added to the turbulence after Prime Minister Sanae Takaichi dissolved parliament and called a snap election for February 8.

AUDUSD traded in a 0.6834-0.6854 range and continues to trade with a firm tone. Support is coming from stronger commodity prices, particularly gold, expectations of further USDCNY weakness, and a generally softer US dollar backdrop.

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