Baystreet.ca - - Wall Street expected to open on a positive note.
- Trading volumes are light due to seasonal holidays.
- Greenback in demand to start the year.
USDCAD: open 1.4426, range Dec.23-Jan 2,1.4325-1.4402, close 1.4450, WTI $72.77, Gold, $2642.61
The Canadian dollar is starting 2025 on a strong footing, driven by robust demand for the US dollar ahead of Donald Trump’s inauguration. The differing policy stances of the Federal Reserve and the Bank of Canada have also undermined the Canadian dollar. However, the biggest Canadian dollar negative is the prospect of 25% tariffs on Canadian imports into the USA. Trump’s tariff threat may merely be a negotiating tactic but the Canadian government is in disarray.
Market sentiment toward Canada has been dampened further by the federal government’s decision to expand its budget deficit by approximately 50%.
WTI crude prices rallied and surpassed the December high. Prices traded in a 71.79-72.88 band overnight. The gains is due, in part, to market expectations of further declines in US crude oil inventories. Forecasts for the EIA Crude Stock Change report point to a reduction of 2.75 million barrels, following last week’s 4.23 million-barrel drawdown.
Today’s key economic releases include weekly jobless claims, Challenger job cuts, and construction spending data.
EURUSD started the year under pressure, and traded lower in a1.0314-1.0375 range. Weak sentiment around the euro is being driven by a dovish monetary outlook from the European Central Bank, ongoing concerns about the Russia-Ukraine conflict, and softer-than-expected manufacturing PMI data for December (45.1 versus the forecast of 45.2).
GBPUSD traded in a 1.2435-1.2540 range. GBPUSD has come under pressure from diverging monetary policies between the Federal Reserve and the Bank of England, as well as concerns about potential US tariffs. BoE Governor Andrew Bailey hinted at a more cautious approach to interest rate cuts while the FOMC is more cautious. Traders largely overlooked higher-than-expected UK house price data and weaker manufacturing PMI numbers.
USDJPY bounced in a 156.44-157.78range overnight. The currency pair remains supported by the wide interest rate differential between the US and Japan, with US 10-year Treasury yields at 4.535%, just below their year-end level of 4.565%. Speculation that the Bank of Japan will maintain its current policy stance in January is providing additional support.
AUDUSD drifted higher in a 0.6183-0.6223 range overnight, supported by Chinese PMI data, which indicated manufacturing activity remains in expansion territory, despite some signs of slowing.