Baystreet.ca - - Lack of tariffs improves risk sentiment.
- Global equities grind higher.
- USD slides on profit-taking.
USDCAD: open 1.4320, overnight range 1.4301-1.4354, close 1.4325, WTI $76.36, Gold, $2760.21
The Canadian dollar has stepped back from the brink and is continuing to flirt with its long term downtrend line. The Loonies gains are solely due to profit-taking and position unwinding as traders re-evaluate their outlook after President Trump failed to follow through on his promise to levy tariffs on Day 1.
However, he has now put February 1 on the calendar as the day 25% tariffs on Canadian imports will go into force. More and more analysts are suggesting the threat is just a way to re-open the US Mexico Canada Agreement on trade (USMCA). That threat will overshadow the Bank of Canada monetary policy meeting next week.
WTI oil prices are see-sawing in a 75.28-76.46 band. Traders are still digesting the implications of Trump’s energy policies while gains are limited due to China’s sluggish economy.
President Trump has not yet acted on his tariff threats, providing markets with a temporary sense of relief. However, if his statements are taken at face value, this period of calm might not last long. His plans for AI development, alongside strong quarterly results from Netflix (NASDAQ:NFLX), have given global stock markets a boost. Japan’s Topix increased by 0.87%, Australia’s ASX 200 gained 0.33%, and European indices also rose, with Germany’s DAX leading at 1.20%. In the U.S., S&P 500 futures are 0.42% higher, while the 10-year Treasury yield remains stable at 4.56%.
EURUSD traded in a 1.0393-1.0458 band with gains due to general U.S. dollar weakness. The rally may be contained due to dovish comments from ECB officials. Bundesbank Governor Joachim Nagel anticipates another 25-bps reduction at the next meeting. Meanwhile, President Trump recently criticized EU trade practices, warning of potential tariffs.
GBPUSD, bounced in a 1.2312-1.2377 range overnight . Prices climbed on improved risk sentiment due to the absence of new tariff announcements. However, challenges such as rising UK inflation, slowing economic growth, a weakening labor market, and expected BoE rate cuts suggest this uptick is likely a temporary correction.
USDJPY drifted in a 155.36-156.11 band. Traders are awaiting Friday’s Bank of Japan monetary policy decision when a 25-bps rate hike to 0.50%, is widely expected.
AUDUSD rallied with the improved risk seeking move and climbed from 0.6253 to -0.6294. Australia’s Leading Index report showed a slight decline (-0.2%, previous 0.06%) and was not a factor.
Today's Canadian Raw Materials and Industrial Product Price data are unlikely to impact FX markets, and the U.S. economic calendar is devoid of top-tier releases.