Canadian dollar surges in early US session after stronger than expected inflation data. Headline CPI jumped 0.9% mom and 2.1% yoy in January. That’s way above expectation of 0.3% mom, 1.6% yoy. Meanwhile, BoC CPI core also rose 0.5% mom and pushed the annual rate higher to 1.7% yoy. The Loonie was mildly troubled by WTI crude oil’s breakout failure. But much support is seen from the inflation reading. Released earlier today, UK BBA mortgage approvals rose to 44.7k in January.

Trump called China "Grand Champions" of currency manipulation

In US, the markets are still waiting for details of president Donald Trump’s economic policies, including that "phenomenal" tax reform. It’s reported that Trump told "some two dozen" heads of major companies that he has plans to bring millions of jobs back to the US. He was quoted as saying, "we are going to find out how we bring more jobs back". Without more details unveiled yet, the market is awaiting a joint session of Congress on February 28. But at the same time, Trump has started his verbal attack on other countries again. He labeled China as the "grand champions" of currency manipulation. However, his Treasury secretary Steven Mnuchin said on Thursday that the administration isn’t "making any judgements" on China’s currency yet. The messages out of the administration are so far rather confusing.

RBA governor Lowe expects a period of stability in interest rate

RBA governor Philip Lowe said today that he expects a "period of stability" in interest rates. He pointed out that "the issue we’re discussing, internally, is how much extra fragility would that mean in the economy with household debt already at a record high." In particular, he throw out that question that "is it really in the national interest to get a little bit more employment growth in the short run at the expense of creating vulnerabilities which would become quite dangerous in the medium term?" In his view, lowest interest rate will encourage people to borrow more for "housing" but not "consumption.

Regarding economic outlook, Lowe said "the picture remains quite complicated." And, "in parts of the country that have been adjusting to the downswing in mining investment or where there have been big increases in supply of apartments, housing prices have declined. In other parts, where the economy has been stronger and the supply-side has had trouble keeping up with strong population growth, housing prices are still rising quickly."

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.3067; (P) 1.3118; (R1) 1.3154; More…

USD/CAD dips sharply today but stays in range of 1.2968/3211. Intraday bias remains neutral first. On the upside, break of 1.3211 resistance will argue that fall from 1.3598 has completed at 1.2968. And more importantly, rise from 1.2460 is still in progress. In that case, intraday bias will be turned back to the upside for 1.3598 and above. On the downside, below 1.2968 will revive the case that rise from 1.2460 is completed and turn outlook bearish for this low. Overall, choppy rise from 1.2460 is still seen as a corrective move.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. The first leg has completed at 1.2460. The second leg could be completed at 1.3598 and fall from there is tentatively seen as the third leg. Break of 1.2460 will target 50% retracement of 0.9460 to 1.4689 at 1.2075 before completing the correction. In case of another rise, we’d look for reversal signal above 61.8% retracement of 1.4689 to 1.2460 at 1.3838.

Economic Indicators Update