Baystreet.ca - - Trump tariff threat weighing on Loonie
- Widening CAD/US interest rate spreads fueling Loonie losses.
- US dollar opens mildly lower but still bid.
USDCAD: open 1.4402, overnight range 1.4383-1.4412, close 1.4404, WTI $72.79, Gold, $2657.95
The Canadian dollar is bobbing in perilous waters as a host of issues threaten to sink it. The primary catalyst is incoming President Donald Trump and his threat to levy 25% tariffs on all imports from Canada. That threat comes at a time when the Canadian government is imploding. Mr. Trump will leverage Trudeau’s woes to extract trade concessions which will further undermine the Canadian dollar.
It's not just that. The Liberal government raised its budget deficit by over 50% to around $60 billion in a losing effort to buy popularity. The move prompted Deputy Prime Minister and Finance Minister Chrystia Freeland to resign.
Furthermore, the Canadian economy is so weak that the Bank of Canada needs to aggressively cut interest rates which is in sharp contrast with the Fed’s monetary policy outlook. The US economy is resilient and the FOMC is in no hurry to trim its benchmark rate. That has widened the 10-year US/CAD yield spread to -133.1 bps.
EURUSD has been holding steady after Thursday's losses, trading within a narrow band of 1.0258 to 1.0306. German unemployment figures remained unchanged at 6.1%, offering little influence on the market. The currency pair faces pressure due to the widening interest rate gap between the US and the EU, as well as concerns about the repercussions of Ukraine's decision to close a significant gas pipeline that connects with Russia.
GBPUSD ranged between 1.2373 and 1.2416, following a dip to 1.2355 yesterday. This movement is partly attributed to a generally weaker US dollar across the board. Analysts are anticipating further downside for the pair, citing a combination of escalating energy prices and increased taxes in the UK. Additionally, former BoE Monetary Policy Committee member Andrew Sentence has raised alarms, warning of an imminent economic crisis in the UK.
USDJPY traded quietly in a 157.04 to 157.57 range, with liquidity reduced due to a national holiday in Japan. The pair remains underpinned by strong US Treasury yields and expectations of a dovish stance from the Bank of Japan. Additionally, President Biden's decision to block the sale of US Steel to Nippon Steel on national security grounds adds a layer of geopolitical risk to the outlook.
AUDUSD traded in a tight range of 0.6197 to 0.6222. Analysts are bearish on the pair, citing expectations for a dovish policy from the Reserve Bank of Australia and the ongoing slowdown in China’s economy.
US ISM Manufacturing for December is expected to be unchanged at 48.4.
NZDUSD mirrored AUDUSD’s movements, trading in a tight range of 0.5591–0.5611. The New Zealand dollar faces similar headwinds, including dovish central bank expectations and concerns over global economic conditions, particularly in China.