CAD
While the loonie has not fully unwound the recent move lower on the back of Trump’s comments yesterday, it is notable that USDCAD has begun early trading this morning with a softening bias. All told, we think this is fair. Trump has just suspended tariffs yet again, and this warrants a paring back of risk premia for the time being. But we continue to think that tariffs on Canadian exports are more likely than not at some point, despite recent developments. As such, we doubt that any move higher for the loonie will be sustained in the medium term, even if the short-term risks skew in favour of USDCAD retracement.
USD
President Trump once again placed himself front and centre for markets yesterday, on this occasion with comments on tariffs. Granted, this was not entirely unexpected – we warned earlier this week that some remarks were likely, with a suspension of levies on Canada and Mexico set to expire in the coming days. Moreover, Trump opened by announcing that a levy on imports from Canada and Mexico would now go into force on April 2nd, in effect delaying implementation for a further month, and appearing to play into a market bias to view his threats as non-credible. But crucially, he did not stop there. Trump went on to announce a 25% tariff on the eurozone, a new development for markets, more than offsetting any dollar-negative implications from his initial remarks. The upshot is that the DXY index ended yesterday at 106.50, 0.3pp stronger than it started, with tariff risks now very much front of mind once again. This, alongside Russia-Ukraine, should stay top of mind for markets today too, with UK PM Kier Starmer heading to the White House.
EUR
The big news from the euro yesterday, was of course, concerning US tariffs on the EU. Trump singled out autos specifically, but by not limiting his comments to just this sector, he gave reason for broader consternation. Moreover, we are inclined to view these threats as different to those levelled at Canada and Mexico. As far as we can see, they are not designed to extract concessions. Rather, this looks like an attempt to protect domestic American manufacturing. Given the differing rationale, we are also inclined to these threats as more credible – and that warrants a further move lower for the euro. Granted, the single currency did slip marginally yesterday, but the EURUSD retracement was limited. Further consideration today should be the main driving factor for the euro, especially considering the light data calendar, skewing risks in favour of a renewed slide for the single currency in our eyes.
GBP
Kier Starmer’s trip to the White House should be the focus for sterling traders today, with two-sided risks for the pound. On the one hand, Starmer lacks the natural charisma of his Macron, while both Elon Musk and JD Vance have singled out the UK for criticism in recent weeks, posing risks that the UK PM gets a much cooler welcome than his French counterpart. On the other, we do think the camaraderie on show between Trump and Macron was notable. A repeat performance, particularly if accompanied by warm words on Ukraine and tariffs, would likely boost both risk conditions and sterling valuations.
This content was originally published by our partners at Monex Canada.