CAD
Last Friday’s GDP data did much to alleviate the downside pressure on CAD stemming from looming tariff risks. That said, we are inclined to think that this will be temporary relief, with few signs as yet that a further suspension could be in store. As we have noted previously, a few tenths here or there on a GDP reading is a rounding error when compared to the potential impact of tariffs, and that should remain the main focus for markets. With this in mind, we suspect loonie traders will be watching the approach of tomorrow’s deadline with apprehension, and barring a last-minute stay of execution, another move higher for USDCAD looks all but certain.
USD
The dollar starts Monday trading marginally lower than it left off last week, with markets taking some comfort from news in recent days that a number of major European countries are willing to step up to the plate on defence. While this looks likely to be a story that continues to rumble on, we suspect the main focus this week will be on tariffs, and on US growth conditions. Concerning the former, the US is set to impose tariffs on Mexico and Canada on March 4th, alongside an additional levy on imports from China. All told, this should be dollar positive if realised, albeit any response will also be of significance. This is especially true of China given that this week sees the NPC kick off on March 5th. Growth conditions will remain a theme too though, especially with a growing chorus warning of economic risks posed by the Trump agenda. Friday’s payrolls figures will be the first notable test of this thesis, and while consensus expectations are not looking for a sharp slowdown, if one were to be delivered, this would do much to take the wind out of the dollar’s sails.
EUR
With news over the weekend proving constructive for European security conditions, it is unsurprising to see EURUSD start this morning on the front foot. The pair is now trading above 1.04 once again, having slumped late on Friday in the aftermath of Zelenskyy’s disastrous meeting with Trump. Looking ahead, February inflation data for the eurozone should be a sideshow when it is published this morning. Country readings suggest little risk of an upset. Similarly, the ECB later in the week looks unlikely to surprise. Lagarde is typically reticent in her comments, and we see little reason that this week will be any different. That should keep markets paying close attention to any further geopolitical developments this week, with Russia-Ukraine and US tariffs likely to be top of mind for traders.
GBP
While not quite seeing the same pickup as the euro, sterling is still making gains this morning. The pound, like its continental counterpart, is seeing some benefit from the news over the weekend. Domestically, it is a relatively light data week coming up, with the BoE’s DMP top of the docket on Thursday. Before then though, BoE Governor Bailey will be appearing in front of the Treasury Select Committee on Wednesday. This event is usually a damp squib for markets, but this time might be a little different. Given such a fast-changing macroeconomic backdrop, there is greater scope for both politicians and rate setters to deviate from the typical script, a dynamic that should help keep traders on their toes come mid-week.
This content was originally published by our partners at Monex Canada.