CAD
While USDCAD continues to sink in response to rolled-back US tariffs, we are still of the view that the current trade tensions are not a positive for loonie fundamentals. Tariff barriers are still rising, albeit in fits and starts. Meanwhile, the uncertainty and knock to sentiment that many assume will hurt US growth, should have an even greater impact on Canada if true, a fact that markets continue to overlook. All told, this looks like a temporary reprieve for the loonie to us, albeit one that might need a slide in the hard data to trigger a turnaround. Fortunately, this afternoon’s jobs data should offer just that nudge, with payroll gains set to drop to just 20k, while the unemployment rate is seen rising to 6.7%. Get that, or anything even softer, and current trading levels should mark a temporary bottom for USDCAD weakness.
USD
Yesterday’s news of a further rollback in tariffs on Canada and Mexico saw the dollar slip once again. The DXY fell 0.1pp on the day, and has dropped another 0.3pp this morning – now left trading below 104 and in line with pre-election levels. That said, we continue to think that greenback scans as cheap at these levels. After all, with some tariffs still in place despite yesterday’s announcement, the broad trend seems to be in one direction, and that is upwards. Similarly, the softening growth narrative that has weighed on the dollar in recent weeks is yet to be borne out in hard data. Unless it is, then calling an end to US growth exceptionalism looks a little premature. It is this second thesis that should be the key focus for markets today as well, with this afternoon’s jobs report set to make or break dollar-bearish calls. Consensus expectations look for a 160k payrolls print, with unemployment remaining stable at 4.0% and average wage growth of 0.3% MoM and 4.1% YoY. If realised, this would point to an economy that is doing just fine, and a labour market that remains solid, if not strong, enough to see an unwind of recent Fed easing bets, with a dollar pickup ahead of the weekend coming in response.
EUR
True to form, ECB President Lagarde once again bored her audience into submission in her post rate decision press conference on Thursday. What could have been an interesting and informative event, not least given US developments in the past month and the recently announced European fiscal efforts, instead devolved into a snoozefest. Distilling the content, however, we are left with some takeaways. First, the ECB has not had proper time to consider the full impact of increased eurozone government spending, but there is broad consensus that it will shift the neutral rate higher. Second, that will, in turn, lead the ECB to terminate their easing cycle at a higher level than previously assumed, characterised by a shift in language on the restrictiveness of policy. With this in mind, we now look for two further rate cuts this year, in June and September, but with every meeting between now and year-end likely to be seen as live by both policymakers and markets. All told, this, combined with the recent drama in Bund markets has helped the euro to hold onto recent gains. EURUSD continues to trade north of 1.08 ahead of this afternoon’s US payrolls data.
GBP
A light data calendar has seen the pound continue to trade in the shadow of the euro, a dynamic that looks unlikely to change before week-end. It is also not a constructive environment for sterling in our view, with growing noises around the difficult decisions facing UK Chancellor Rachel Reeves. We suspect this will become a major focus in the coming weeks, ahead of the March 26th economic update. This event now looks all but certain to become a mini-budget given that the Chancellor will meet her fiscal targets, necessitating further tax and spending tweaks. A backdrop of tight finances, hostile briefings, and an impending mini-budget, are all but certain to resurrect memories of Liz Truss, signalling that a temporary bout of sterling underperformance is more likely than not this month.
This content was originally published by our partners at Monex Canada.