CAD
Given Canada’s relative exposure to tariff risks, any “Liberation Day” announcements should be the key risk for loonie traders on the horizon. Granted, Canada is also set to receive March labour market data on Friday, but this is likely to pale in economic significance, if US tariffs are delivered, and the Trump administration can resist the urge to flip-flop once again. Indeed, we think USDCAD looks particularly vulnerable trading around 1.43. This is some way lower than levels reached earlier in the year when market concerns around tariffs were arguably more acute, while we continue to think that a sustained rise in tariff barriers can push the pair north of 1.50 if it becomes clear that levies are here to stay. But the speed and timing of any such move higher will ultimately depend on the final shape of US import levies. That means we, like most, will have a close eye on the White House this week – and given market bias to express views on tariffs via USDCAD, we see risks skewed in favour of a softer loonie as the announcements begin to trickle through.
USD
Market headlines start the week with tariffs front and centre, unsurprising perhaps given that Trump’s April 2nd “Liberation Day” is now just around the corner. More interesting to us is how this is playing out in the price action. The dollar remains relatively unmoved, with the DXY index having actually shed a tenth through overnight trading. Instead, equities are trading under pressure, seeing the Nikkei slide close to 4%, while govvies continue to rally. This is, however, consistent with the recent shift in market bias to price the negative growth impact of tariffs ahead of any implementation announcement. We remain of the view that tariffs should ultimately be dollar-positive on net, albeit this may take some time to shake out across FX markets, likely once traders get a clearer view of the size and shape of US tariffs later this week. But combined with jobs data, culminating in the March labour market report on Friday – which we expect to deliver further pushback on US growth fears, the FX setup is one that should favour dollar strength.
EUR
Aside from tariff concerns, inflation data is front of mind to start the week for euro traders, with German CPI set for publication today, followed by aggregate eurozone readings tomorrow morning. And, if last week’s French and Spanish readings are anything to go by, a softer-than-expected reading looks likely. This should see a further acceleration in ECB easing bets at the margin, with an April rate cut all but a done deal in our eyes. But tariff uncertainty looming on the horizon is also likely to muddy the waters, ensuring that any moves remain muted until after trade risks begin to crystalise. Indeed, ECB President Lagarde hinted at such a point in comments this morning, emphasising uncertainty surrounding the inflation outlook. So, while our base case expects softer growth, leading to slower inflation on net – a backdrop we expect to weigh on the euro, a sharp move lower for the single currency is unlikely, at least for now.
GBP
Having tested 1.20 on Friday, GBPEUR starts the new week trading close to 0.5% lower, while GBPUSD continues to track sideways just shy of 1.30. We remain of the view that the pound should be softer against both on a tactical basis, given the disappointment of last week’s Spring Statement, but we doubt that domestic events this week will be the trigger for such a move. There are no tier one data releases scheduled, with the BoE’s Greene the only speaker of note. That should leave sterling broadly tracking the euro, with tariff developments likely to be the primary driver of price action.
This content was originally published by our partners at Monex Canada.