– Possible Ukraine/Russia peace talks boost risk sentiment
– Canada could face more Trump tariffs today.
– USD opens rangebound and mixed.
USDCAD: open 1.4290, overnight range 1.4255-1.4307, close 1.4309, $70.23, Gold, $2918.02
The Canadian dollar rode a wave of positive risk sentiment in Asia but quickly gave back all the gains by the time NY opened. The rally was sparked by the reaction to Trump’s initiative to force peace negotiations on Russia and Ukraine.
The retreat was spurred by the realization that President Trump is expected to impose reciprocal tariffs on all countries with tariffs on US imports. Canada is not exempt and to make matters worse, White House officials are suggesting the new tariffs are in addition to any existing levies.
The Bank of Canada released its Summary of Deliberations of the January 29 meeting. They did not offer any new insights but merely reiterated that the tariffs risk doing serious damage to the domestic economy.
Yesterday’s US inflation report came in higher than expected, reinforcing the case for the Federal Reserve to keep interest rates steady. Fed Chair Jerome Powell, along with Chicago Fed President Austan Goolsbee and Atlanta Fed President Raphael Bostic, reiterated that more work remains to control inflation.
Today’s US Producer Price Index (PPI) report could further support this view if core PPI, excluding food and energy, rises beyond the anticipated 3.3% year-over-year increase. Meanwhile, weekly jobless claims are projected to decline by 4,000 to 215,000.
EURUSD traded in a 1.0383-1.0440 range, rallying on headlines about potential Russia-Ukraine peace talks. However, the move may be exaggerated due to heavily oversold positioning, making it more of a corrective rebound. A reversal could occur if Trump imposes retaliatory tariffs today. German inflation data matched expectations and had no significant market impact.
GBPUSD moved between 1.2441 and 1.2518, gaining ground after Q4 GDP rose 1.4% year-over-year, exceeding the prior 1.0% (revised) and the 1.1% forecast. Despite the strong headline number, ING analysts noted that the growth stemmed primarily from inventory accumulation, with household consumption, exports, and business investment remaining flat or negative.
USDJPY fluctuated within a 153.77-154.67 range, peaking during Asian trading before edging lower into the New York open. Selling pressure emerged amid improved risk sentiment, driven by hopes for Russia-Ukraine peace talks and rising expectations of a Bank of Japan rate hike. The higher rate expectations followed a jump in Japan’s PPI to 4.2% from 3.9% year-over-year. However, support for USDJPY remains strong as the US 10-year Treasury yield holds steady at 4.60% after yesterday’s surge.
AUDUSD traded between 0.6259 and 0.6300, underperforming due to concerns over Trump’s proposed reciprocal tariffs on China and Australia. Market unease increased after former Trump trade adviser Peter Navarro accused China-backed Australian aluminum exporters of flooding the US market. Traders largely ignored the increase in consumer inflation expectations, which rose to 4.6% from 4.0%.
