Tag: CAD

  • Dollar Weakened by Reports Trump Is Holding Off on New Tariffs

    Dollar Weakened by Reports Trump Is Holding Off on New Tariffs


    Dollar weakened broadly in early US session as reports from The Wall Street Journal indicated that Donald Trump, during his inauguration, will only outline his trade vision but avoid imposing new tariffs for now. While this temporarily calms market fears of immediate disruptions, the situation remains dynamic, and unexpected developments could trigger sharp reversals, especially if the WSJ report proves inaccurate.

    According to the report, Trump plans to issue a memorandum directing federal agencies to study trade policies and assess trade relationships with key partners, including China, Canada, and Mexico. The memorandum is expected to focus on addressing persistent trade deficits and investigating unfair trade and currency practices.

    Specific directives include examining China’s compliance with the 2020 trade deal and reviewing the US-Mexico-Canada Agreement, which is up for re-evaluation in 2026. These steps suggest Trump is prioritizing groundwork over immediate action, but the spotlight remains on the possibility of future tariffs.

    Technically, immediate focus is now on 1.4301 support in USD/CAD’s with today’s sharp reversal. Firm break there would at least bring deeper pull back to 55 D EMA (now at 1.4194). There is prospect of even deeper fall to 38.2% retracement of 1.3418 to 1.4484 at 1.4077 should CPI and retail sales data from Canadian Dollar later in the week are Loonie supportive. Or, at least, Canadian Dollar could have a breather until Trump’s tariffs are really imposed.

    In Europe, at the time of writing, FTSE is extending its record run and rises 0.12%. DAX is down -0.03% while CAC is up 0.02%. UK 10-year yield is up 0.041 at 4.701. Germany 10-year yield is up 0.016 at 2.548. Earlier in Asia, Nikkei rose 1.17%. Hong Kong HSI rose 1.75%. China Shanghai SSE rose 0.08%. Singapore Strait TImes fell -0.07%. Japan 10-year JGB yield fell -0.010 to 1.197.

    ECB’s Holzmann: January rate cut not as certain with elevated inflation risks

    Austrian ECB Governing Council member Robert Holzmann expressed skepticism over a potential rate cut at ECB’s upcoming January meeting. In an interview with Politico, Holzmann stated, “A cut is not a foregone conclusion for me at all,” emphasizing his commitment to approaching the discussion with an “open mind.”

    Holzmann highlighted that ECB decisions are fundamentally data-driven and noted that inflation remained “well above” 2% in December, with January figures expected to reflect similar levels. He cautioned that “cutting interest rates when inflation rises faster than anticipated, even temporarily, risks hurting credibility.”

    As a known policy hawk, Holzmann also revealed increased doubts about inflation settling around ECB’s 2% target by the end of the year. He cited unexpected developments since the December decision, including faster-than-expected depletion of gas reserves due to colder weather, the effective closure of the Ukraine gas transit, and the risks of persistently high energy prices.

    China maintains LPR as offshore Yuan recovers ahead of key support

    China’s central bank maintained its benchmark lending rates unchanged on Monday. The one-year loan prime rate was steady at 3.1%, while the over-five-year LPR, which influences mortgage rates, remained at 3.6%.

    The offshore Yuan strengthened notably against the Dollar, continuing to draw support from a a key long-term level. This comes despite market speculation that China might allow Yuan to weaken further to counteract the economic effects of new tariffs introduced under Donald Trump’s presidency.

    A weaker currency would bolster export competitiveness by making Chinese goods more affordable internationally. However, Beijing faces a dilemma: while a controlled depreciation could help exporters, an uncontrolled fall could lead to heightened volatility in domestic financial markets and reduced investor confidence.

    Acknowledging these risks, PBOC Governor Pan Gongsheng reaffirmed the central bank’s commitment to exchange rate stability last week, stating, “We will resolutely prevent the risk of the exchange rate overshooting, ensuring that the Yuan exchange rate remains generally stable at a reasonable, balanced level.”

    EUR/USD Mid-Day Outlook

    Daily Pivots: (S1) 1.0247; (P) 1.0289; (R1) 1.0313; More…

    EUR/USD is still capped below 1.0435 resistance despite extending rebound from 1.0176. Intraday bias remains neutral and outlook stay bearish. Firm break of 1.0176 will resume whole fall from 1.1213. However, decisive break of 1.0435 will confirm short term bottoming, and turn bias back to the upside for stronger rebound to 38.2% retracement of 1.1213 to 1.0176 at 1.0572 first.

    In the bigger picture, fall from 1.1274 (2023 high) should either be the second leg of the corrective pattern from 0.9534 (2022 low), or another down leg of the long term down trend. In both cases, sustained break of 61.8 retracement of 0.9534 to 1.1274 at 1.0199 will pave the way back to 0.9534. For now, outlook will stay bearish as long as 1.0629 resistance holds, even in case of strong rebound.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:50 JPY Machinery Orders M/M Nov 3.40% -0.70% 2.10%
    00:01 GBP Rightmove House Price Index M/M Jan 1.70% -1.70%
    01:00 CNY 1-y Loan Prime Rate 3.10% 3.10% 3.10%
    01:00 CNY 5-y Loan Prime Rate 3.60% 3.60% 3.60%
    04:30 JPY Tertiary Industry Index M/M Nov -0.30% 0.10% 0.30% 0.10%
    04:30 JPY Industrial Production M/M Nov F -2.20% -2.30% -2.30%
    07:00 EUR Germany PPI M/M Dec -0.10% 0.30% 0.50%
    07:00 EUR Germany PPI Y/Y Dec 0.80% 1.10% 0.10%
    07:30 CHF PPI M/M Dec 0.00% 0.20% -0.60%
    07:30 CHF PPI Y/Y Dec -0.90% -1.50%
    15:30 CAD BoC Business Outlook Survey

     



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  • Commodity Currencies Slide as Markets Brace for Trump’s Tariff Moves

    Commodity Currencies Slide as Markets Brace for Trump’s Tariff Moves


    Sharp selloff in commodity currencies against Dollar is dominating market action as the US session unfolds. While broader trading remains subdued, the sudden weakness in these currencies appears tied to trader caution ahead of President-elect Donald Trump’s inauguration on Monday. Concerns over tariff policies could be the main driver of the moves, in the absence of other clear fundamental catalysts.

    Canada, Mexico, and China are widely speculated to be high on Trump’s tariff agenda. The tariffs may serve as leverage to address issues like fentanyl exports or re-exports impacting the United States.

    However, the specifics of Trump’s strategy remain a “wild card.” Possible scenarios include blanket tariffs on major trading partners, sector-specific measures, immediate enactment via executive orders, or staggered monthly increases. Or, it could be a mix of these approaches.

    For the week, Sterling remains the weakest performer, followed by Loonie and Dollar. On the other hand, Japanese Yen leads gains with the Aussie and Swiss Franc rounding out the top three. Kiwi and Euro are trading in mixed positions. However, the current selling pressure on commodity currencies could alter these rankings as the week comes to the close.

    ECB’s Nagel: Should avoid rushing monetary policy normalization

    German ECB Governing Council member Joachim Nagel in an interview with Platow Brief, highlighted persistent services inflation and a “high level of uncertainty,” referencing concerns about global trade dynamics as Donald Trump prepares to return to the White House next week.

    “We should therefore not rush into anything on the path to monetary policy normalization,” Nagel stated.

    Meanwhile, he defended the ECB’s discussions of a more aggressive 50-basis-point rate cut during its December meeting, noting that such debates are a normal part of policy deliberations.

    ECB’s Elderson: Rate setting is a question of speed and magnitude

    ECB Executive Board member Frank Elderson emphasized the delicate balance the central bank must strike in setting interest rates during an interview with Het Financieele Dagblad.

    He warned, “If we lower the interest rate too quickly, dialling down services inflation sufficiently could become complicated.” At the same time, he acknowledged the risks of maintaining rates too high for too long, which could lead to undershooting ECB’s inflation target.

    “The markets don’t think we’ve finished easing now that we’re at 3% and I don’t think we have, either,” he added. “Setting interest rates is ultimately a question of how fast and how much.”

    Eurozone CPI finalized at 2.4% in Dec, core CPI at 2.7%

    Eurozone inflation was finalized at to 2.4% yoy in December, up from November’s 2.2% yoy. Core CPI, which excludes energy, food, alcohol, and tobacco, held steady at 2.7% yoy. Services made the largest contribution to the annual headline inflation rate (+1.78 percentage points), followed by food, alcohol, and tobacco (+0.51 pp), non-energy industrial goods (+0.13 pp), and energy (+0.01 pp).

    In the broader EU, inflation was finalized at 2.7% yoy, up from 2.5% yoy in November. Ireland recorded the lowest annual inflation rate at 1.0%, followed by Italy at 1.4%, with Luxembourg, Finland, and Sweden at 1.6% each. On the other end, Romania (5.5%), Hungary (4.8%), and Croatia (4.5%) posted the highest inflation rates.

    Across the EU, annual inflation rose in 19 member states, remained unchanged in one, and fell in seven compared to the previous month.

    UK retail sales fall -0.3% mom in Dec, down -0.8% qoq in Q4

    UK retail sales volumes declined by -0.3% mom in December, significantly missing expectations for 0.4% mom increase. The drop was primarily driven by reduced supermarket sales, partially offset by a rebound in non-food stores such as clothing retailers, which saw recovery after recent declines.

    On a quarterly basis, sales volumes in Q4 fell -0.8% qoq compared with Q3, highlighting a slowdown in consumer activity. However, year-on-year, Q4 sales volumes rose 1.9% compared to the same period in 2023.

    China’s Q4 GDP growth surpasses expectations, full-year growth hits 5% target

    China’s economy ended 2024 on a strong note, with GDP expanding by 5.4% yoy in Q4, beating market expectations of 5.0%. This marked a significant acceleration from 4.6% in Q3, 4.7% in Q2, and 5.3% in Q1. The robust Q4 performance pushed full-year GDP growth to 5.0%, aligning with the government’s target of “around 5%.”

    December’s economic indicators also showed positive momentum. Industrial production surged 6.2% yoy, exceeding the forecast of 5.4%. Retail sales grew by 3.7% yoy, marginally beating expectations of 3.5%. However, fixed asset investment lagged, rising only 3.2% year-to-date, just below the 3.3% forecast.

    Despite the upbeat data, concerns remain. Statistics Bureau spokesperson Fu Linghui acknowledged lingering weakness in consumer spending and cautioned that in 2025, the “unfavorable impact of external factors may deepen.”

    BNZ PMI at 45.9: NZ manufacturing completes 2024 fully in contraction

    New Zealand’s BNZ Performance of Manufacturing Index rose marginally in December, increasing from 45.2 to 45.9. While this marks a slight improvement, the sector remains in a prolonged contraction, far below the long-term average of 52.5 since the survey’s inception. December also marked the 22nd consecutive month of contraction, a record-breaking trend for the PMI.

    Catherine Beard, Director of Advocacy at BusinessNZ, noted that 2024 was unprecedented, as it was the first year in the survey’s history with all 12 months in contraction. By comparison, the next closest period was 2008 during the Global Financial Crisis, which saw nine months of contraction.

    Breaking down the December data, production dropped further, slipping from 42.3 to 41.9. Employment showed modest improvement, rising from 46.9 to 47.6, while new orders also edged up from 44.5 to 46.5. However, finished stocks fell significantly, declining from 49.2 to 45.9, and deliveries dipped slightly below the neutral 50 mark, moving from 50.0 to 49.8.

    USD/CAD Mid-Day Outlook

    Daily Pivots: (S1) 1.4336; (P) 1.4370; (R1) 1.4427; More…

    Immediate focus is now on 1.4466 resistance with current strong rally ins USD/CAD. Decisive break there will resume larger up trend to 1.4667/89 long term resistance zone. On the downside, break of 1.4279 support will bring deeper correction. But downside should be contained by 55 D EMA (now at 1.4187) to bring rebound.

    In the bigger picture, up trend from 1.2005 (2021) is in progress for retesting 1.4667/89 key resistance zone (2020/2015 highs). Medium term outlook will remain bullish as long as 1.3976 resistance turned holds (2022 high), even in case of deep pullback.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    21:30 NZD Business NZ PMI Dec 45.9 45.5
    02:00 CNY GDP Y/Y Q4 5.40% 5.00% 4.60%
    02:00 CNY Industrial Production Y/Y Dec 6.20% 5.40% 5.40%
    02:00 CNY Retail Sales Y/Y Dec 3.70% 3.50% 3.00%
    02:00 CNY Fixed Asset Investment (YTD) Y/Y Dec 3.20% 3.30% 3.30%
    07:00 GBP Retail Sales M/M Dec -0.30% 0.40% 0.20% 0.10%
    09:00 EUR Current Account (EUR) Nov 27.0B 28.0B 25.8B 30.2B
    10:00 EUR Eurozone CPI Y/Y Dec F 2.40% 2.40% 2.40%
    10:00 EUR Eurozone CPI Core Y/Y Dec F 2.70% 2.70% 2.70%
    13:30 USD Building Permits Dec 1.48M 1.46M 1.49M
    13:30 USD Housing Starts Dec 1.50M 1.32M 1.29M
    14:15 USD Industrial Production M/M Dec 0.90% 0.30% -0.10% 0.20%
    14:15 USD Capacity Utilization Dec 77.60% 77.10% 76.80% 77.00%

     



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  • Sterling Slides Further as UK Fiscal Concerns Persist, UK-China Trade Efforts Fail to Reassure Markets

    Sterling Slides Further as UK Fiscal Concerns Persist, UK-China Trade Efforts Fail to Reassure Markets


    Sterling extended its losses at the start of the week as deepening concerns over the UK’s fiscal situation continued to dominate market sentiment. Yields on 10-year UK Gilts surged above 4.88%, inching closer to the psychologically significant 5% mark. Market participants remain skeptical about the government’s fiscal discipline, despite repeated reassurances from Chancellor Rachel Reeves.

    At a press conference in China, Reeves reaffirmed her commitment to fiscal responsibility, stating, “We will pay for day-to-day spending through tax receipts and we will get debt down as a share of GDP.” However, these declarations fell flat with the markets, which is ore focused on the UK’s mounting fiscal challenges and sluggish economic growth.

    Reeves’ attempts to rejuvenate UK-China trade ties also failed to make a meaningful impact on sentiment. During her visit to Beijing, she announced trade and investment agreements worth GBP 600m over the next five years, following discussions with Chinese Vice-Premier He Lifeng.

    However, markets dismissed the news, viewing it as insufficient to offset broader economic and fiscal challenges. Domestically, Reeves faced criticism for engaging too closely with China, with some accusing her of compromising national interests for limited gains.

    In broader currency markets, Pound is currently the worst performer of the day, with Euro close behind. Dollar, consolidating last week’s robust gains, ranks as the third weakest currency. On the other hand, Yen tops the leaderboard, benefiting from renewed risk aversion among investors. Aussie follows, buoyed by upbeat Chinese trade data, while Kiwi ranks third. Swiss Franc and Canadian Dollar are positioning in the middle.

    The upcoming week promises significant developments, with key inflation reports from the US, UK, and Australia, alongside UK GDP figures.

    Technically, AUD/CAD’s fall from 0.9375 continued last week and edged closer to 0.8851 structural support. Decisive break there should confirm that whole corrective rebound from 0.8562 (2023 low) has completed, and solidify medium term bearishness for retesting this low. Nevertheless, strong bounce from current level, followed by break of 0.9016 resistance, will keep the rise from 0.8562 alive for another rally through 0.9375 at a later stage.

    ECB’s Lane stresses the need for “middle path” on interest rates

    ECB Chief Economist Philip Lane, in an interview with Der Standard, highlighted that a “middle path” is essential to achieving the inflation target without stifling economic growth or allowing inflationary pressures to persist.

    Lane warned that if interest rates fall too quickly, it could undermine efforts to bring services inflation under control. On the other hand, keeping rates too high for too long risks that inflation could “materially fall below target”.

    “We think inflation pressure will continue to ease this year,” Lane stated, while adding that wage increases in 2025 are expected to moderate significantly, which could contribute to a softer inflationary environment.

    While acknowledging that the overall direction of monetary policy is clear, Lane underlined the complexities of striking the right balance of “being neither too aggressive nor too cautious.”

    China’s monthly trade surplus soars to USD 104.8B as exports jumps 10.7% yoy

    China’s trade data for December delivered a solid performance, reflecting resilience in exports and a surprising recovery in imports.

    Exports surged 10.7% yoy, significantly outpacing the 7.3% yoy expected growth and accelerating from November’s 6.7%.

    Shipments to major markets rose sharply, with exports to the US jumping 18.9% yoy, ASEAN by 15.6% yoy, and the EU by 8.7% yoy. Some analysts highlighted that front-loading ahead of the Lunar New Year and trade policy shifts under Donald Trump’s incoming administration likely bolstered the month’s figures.

    Imports grew 1.0% yoy, defying expectations of a -1.5% yoy decline and marking a rebound after consecutive contractions of -3.9% yoy in November and -2.3% yoy in October. This recovery was driven in part by increased purchases of commodities like copper and iron ore, with importers potentially capitalizing on lower prices.

    Regionally, imports from the US rose by 2.6% yoy, while ASEAN imports grew 5.4% yoy. However, imports from the EU fell by -4.9% yoy.

    Trade surplus widened from USD 97.4B in November to USD 104.8B in December, surpassing expectations of USD 100B.

    Looking ahead, markets will closely monitor China’s upcoming GDP figures, due for release on Friday. Expectations are for fourth-quarter growth to clock in at 5.0% yoy.

    Market focus on US inflation and UK growth as Sterling and Aussie face risks

    Markets are preparing for a critical week with Dollar, Sterling, and Aussie all facing major economic releases.

    In the US, upcoming CPI and retail sales reports will command attention, especially following last week’s strong employment data that has rattled expectations about Fed’s next move. With non-farm payrolls far exceeding forecasts, traders have priced out the likelihood of a rate cut in the first quarter, turning their gaze instead to May or even June as the earliest possibility.

    Fed officials, who have long noted balanced risks to the dual mandate, could pivot more hawkishly if inflation readings surprise on the upside. Should CPI data reveal resurgence in price pressures, markets may be forced to extend their timeline for a Fed rate cut.

    Such a shift would likely offer further support to Dollar, which is already benefiting from the resilience of US labor markets and the potential for sustained higher interest rates.

    Meanwhile, US retail sales report will provide an additional gauge of consumer demand; robust spending could reinforce the notion that Fed has limited room to ease policy in the near term, keeping the Dollar well-bid.

    In the UK, Sterling is bracing for GDP, CPI, and retail sales figures. The Pound suffered sharp decline last week amid intensifying concerns over fiscal de-anchoring and stagflation.

    Should UK economic data disappoint on growth—particularly GDP or retail sales—the currency could face renewed selling pressure. Although upside surprises in inflation remain possible, investors appear more wary of signs that British growth is faltering in the wake of the Autumn budget measures.

    In Australia, markets are closely weighing whether RBA will commence its easing cycle in February or May. Much hinges on labor market developments. If job data continues to weaken, policymakers may have room to act sooner. Attention will then shift to Q4 CPI data, due in about two weeks, as a decisive factor in clarifying RBA’s direction.

    Meanwhile, external factors also come into play: China’s upcoming GDP release, along with a host of other indicators, could influence regional sentiment and, by extension, Australian Dollar.

    Here are some highlights for the week ahead:

    • Monday: China trade balance; Swiss SECO consumer climate.
    • Tuesday: Australia Westpac consumer sentiment; Japan current account; US PPI.
    • Wednesday: Japan machine tool orders, UK CPI; Eurozone industrial production; Canada manufacturing sales, wholesale sales; US CPI, Empire state manufacturing, Fed’s Beige Book.
    • Thursday: Japan PPI; Australia employment; UK GDP, production, trade balance; Eurozone trade balance, ECB accounts; US retail sales, jobless claims, Philly Fed survey, import prices, business inventories, NAHB housing index.
    • Friday: New Zealand BNZ manufacturing; China GDP, industrial production, retail sales, fixed asset investment; UK retail sales; Eurozone CPI final; US building permits and housing starts, industrial production and capacity utilization.

    GBP/JPY Daily Outlook

    Daily Pivots: (S1) 191.61; (P) 193.20; (R1) 194.19; More…

    GBP/JPY’s decline from 198.94 continues today and intraday bias remains on the downside. Deeper fall would be seen to 188.07 support. Firm break there will argue that corrective pattern from 180.00 has finished too, and larger decline from 208.09 might be ready to resume. On the upside, above 192.89 minor resistance will turn intraday bias neutral first. But risk will stay on the downside as long as 55 4H EMA (now at 195.22) holds.

    In the bigger picture, price actions from 208.09 are seen as a correction to whole rally from 123.94 (2020 low). The range of consolidation should be set between 38.2% retracement of 123.94 to 208.09 at 175.94 and 208.09. However, decisive break of 175.94 will argue that deeper correction is underway.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    21:45 NZD Building Permits M/M Nov 5.30% -5.20%
    00:00 AUD TD-MI Inflation Gauge M/M Dec 0.60% 0.20%
    03:00 CNY Trade Balance (USD) Dec 104.8B 100.0B 97.4B
    08:00 CHF SECO Consumer Climate -30 -38 -37

     



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