– Bank of Canada rate cut of 25 bps is fully priced in.
– Focus is on US CPI and tariff talk
– USD trading mixed but with a slight negative bias.
USDCAD: open 1.4436, overnight range 1.4422-1.4485, close 1.4436, WTI 66.74, Gold 2914.27
The Canadian dollar is trading in New York a tad firmer from where it opened, and it appears to be fully recovered from yesterday’s volatile whipsaw moves.
President Trump and the US administration received a wake-up call yesterday after Ontario Premier Doug Ford slapped a 25% surcharge on electricity exports to the US. President Trump went apocalyptic and announced he would double the steel and aluminum tariffs to 50% while shutting down the entire Canadian auto industry. Ford countered with a threat to halt electricity exports.
Cooler heads prevailed, and Premier Ford was invited to Washington to discuss the issues. President Trump even described Ford as a “gentleman” and a “strong man.”
Nevertheless, the US 25% tariffs on steel and aluminum came into effect today, which resulted in the EU imposing counter tariffs on €26 billion of US goods.
The trade drama has overshadowed the Bank of Canada monetary policy announcement today. The BoC is widely expected to cut rates by 25 bps to 2.75%. The statement will be deliberately vague due to the unknown impact of the tariffs.
The major focus is today’s February inflation data from the US. Core CPI is expected to tick down to 3.2% from 3.3%, but it isn’t enough to get the Fed to cut rates. Traders are on alert in the event CPI rises more than expected, as that could kick off discussions that interest rates may need to rise.
EURUSD traded between 1.0888 and 1.0926 as market participants largely ignored the brewing US/EU trade tensions, leaving the pair confined within the previous day’s boundaries. ECB President Christine Lagarde cautioned that trade disruptions could heighten inflation volatility, complicating the central bank’s ability to provide clear policy guidance.
GBPUSD drifted in a 1.2914 to 1.2956 range as traders remained on the sidelines ahead of key US inflation data. GBPUSD direction will be dictated by the broader US dollar trend.
USDJPY traded higher in a 147.68-148.67 range. PPI figures were slightly softer than January’s (0% m/m versus the previous 0.3%) but still outperformed forecasts for a -0.1% decline. The data failed to generate much excitement, as it is unlikely to deter the Bank of Japan from tightening policy.
AUDUSD traded defensively in a 0.6277-0.6301 band due to bearish sentiment over Trump’s tariff policies, which are expected to weigh on both Australian and Chinese exports.
