Dollar Soft in Early Trade

Narrow consolidation for the Canadian dollar against the U.S.dollar again overnight and no fundamentals for Canada turns the focus on the technicals. Medium- and short-term focus is on buying greenbacks, with long-term indicators a sell. WTI crude has retreated after higher oil prices have investors concerned if the Organization of the Petroleum Exporting Countries and their and non-OPEC counterparts' agreement to cut production will cause cheating within member allowances as well as allowing U.S. producers to up their output only adding to the glut.

The market’s biggest risk is still coming out of China with government officials kicking around a suggestion from State Information Center Chief Economist Zhu Baoliang, calling for a one-off depreciation of the yuan exchange rate against the U.S. dollar. The concern is an immediate shock to the economy, outflow of yuan into the foreign exchange market, an implementation of stricter regulation on capital outflow to prevent a mass exodus, and the possibility of a black market for foreign exchange forming in the latter scenario a road to uncertainty.

Experts expect a range today of $1.3174 to $1.3278 Canadian for the U.S. dollar.

The euro won’t have much to trade on until tomorrow, as no event risk released this morning. Euro-zone Industrial Production is due tomorrow while Germany will be releasing its gross domestic product and Public Finance Balance. The continental currency has dropped back down towards early December’s range and is currently trading at $1.3905 Canadian.

Commentators expect a range today of $1.3880 to $1.3962 Canadian

U.K. Trade Balance in November fell short of expectations at -11.2 billion pounds, as November data printed at -12.2 billion pounds. Construction Output in November also underperformed releasing at 1.5% y/y. The only good news came from Industrial and Manufacturing Productions in November as it printed better than expected at 2.0% y/y and 1.2% y/y respectively. The sterling is back down from Monday’s low and currently trading at $1.6035 Canadian.

Traders expect a range today of $1.6000 to $1.6123 Canadian

The Australian dollar continues to trade higher on the back of commodity prices with gold and copper all on firmer footing. However, the risk to the downside persist as tighter U.S. monetary policy presents a risk for the higher yielding currency. Also, the market has not excluded the risk of further easing from the Reserve Bank of Australia in the next few months. Selling pressure is expected to resume on any gains back to the 0.7500 level for the Aussie vis-a-vis the U.S. dollar.

Oil (WTI): $51.18

Gold: $1,188.07

Silver: $16.73

Copper: $2.5731

Dollar Index: 102.5

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