CAD
Surprisingly to us, the loonie is amongst the best performing G10 currencies overnight. While USDCAD is up, the pair has only risen by 0.75%, a smaller move than seen across other major currency pairs. To us, this fails to recognise the risk that Trump tariffs pose to the Canadian economy. Indeed, looking at America’s southern neighbour, where the tariff impact is likely to be similar, MXN is down more than 3%. We think the truth is likely to be somewhere in the middle, suggesting downside risks for CAD on the horizon.
USD
Results in the past hour or so appear to have been enough to see Donald Trump secure the 270 Electoral College votes needed to win the presidency. This has seen the DXY dollar index rally 1.7% overnight, in line with our expectations for a Trump victory. How much further this has to run, now hangs on who ultimately controls Congress. The Republicans have already flipped enough seats to guarantee a majority in the Senate. But House control continues to hang in the balance. For now, we think this should put a soft cap on further dollar upside, albeit risks are skewed towards a renewed greenback rally in the event that a Republican sweep materialises.
EUR
EURUSD slumped overnight on the news that Trump is set to be the next US president. As of writing the pair is down 2%, with risks looking skewed toward further weakness as more results are unveiled. With this likely to be the dominant story of the day – and little other news flow of note, we suspect the euro is likely to stay trading under pressure as markets adjust to the new state of affairs.
GBP
As expected, sterling outperformed overnight. Even with GBPUSD giving up 1.5% as the results trickled in, GBPEUR rose 0.5%. In our view, this reflects the UK’s relatively more insulated position on trade when compared to the eurozone, cushioning the blow to the pound from any potential tariff risks. We see little reason for this not to continue either. With markets still to price in the full impact of expansionary fiscal spending from last week’s budget, sterling should make headway on crosses, even as it gives up ground to the greenback.
This content was originally published by our partners at Monex Canada.