– Canadian dollar returns to early January level.
– Global risk sentiment improves after China’s “measured” tariff retaliation.
– US dollar on the defensive with losses across the board.
USDCAD: open1.4279 overnight range 1.4272-1.4345, close 1.4323, WTI $72.09, Gold, $2867.98
The Canadian dollar is soaring. USDCAD has dropped from a peak of 1.4795 on Monday night in Asia to 1.4272 overnight. President Trump’s decision to delay the Canada/US trade war caused massive long USDCAD positions to get unwound which may be just a temporary reprieve. Nevertheless, the lowered risk of a global trade war, at least for today, fueled a widespread US dollar sell-off which saw the Japanese yen become the best performing currency gains the dollar in overnight trading.
Another sign that the Canadian dollar rally may just be temporary can be found in Canada/US 10-year bond yield spreads. They are still -146.9, narrower than yesterday but still at 10-year lows.
Global equity indexes have mostly shrugged off disappointing earnings results from Alphabet. Australia’s’ ASX 200 closed with a gain of 0.51%. Hong Kong’s Hang Seng index lost 0.90% which was due to Trump’s latest tariffs. European bourses are mixed. The UK FTSE 100 index is up 0.18% while the French CAC 40 is down 0.17%. S&P500 futures are down .042%.
EURUSD opened in New York at 1.0423 after trading within a range of 1.0370 to 1.0431 overnight. The currency pair bounced back as concerns over North American trade tensions eased, and China’s response to Trump’s tariffs remained relatively subdued. Despite this, Trump has yet to withdraw his threat of tariffs on the European Union. Meanwhile, Treasury Secretary Scott Bessent is making efforts to mend relations, reaching out to EU President Christine Lagarde to emphasize the importance of strong US-EU trade ties.
GBPUSD started the New York session at 1.2540, following an overnight range of 1.2464 to 1.2550. Traders largely overlooked slightly weaker UK Composite and Services PMI data, choosing instead to focus on the improved global risk sentiment. Market expectations suggest that the Bank of England will lower interest rates by 25 basis points to 4.50% in its upcoming decision.
USDJPY opened at 152.65 in New York after fluctuating between 152.55 and 155.46 overnight. The pair tumbled after Japanese wage growth surged in December, surpassing expectations with an annual increase of 4.8% compared to the forecast of 3.8% and the previous 3.9%. This strengthened the case for another rate hike from the Bank of Japan. Additionally, a dip in US Treasury yields provided further support, with the 10-year yield falling to 4.51% overnight.
AUDUSD was at 0.6285 when New York trading began, having moved within a range of 0.6240 to 0.9291 overnight. The Australian dollar gained momentum amid improved risk appetite following an announcement that temporarily eased trade tensions between Canada, the US, and Mexico. Additionally, China’s measured reaction to new US tariffs helped boost investor confidence, lifting equity markets. Australia’s Services PMI indicated a surge in business confidence, reaching a 32-month high. According to S&P, “There was good news all around, with activity and new orders rising at faster rates, while business confidence strengthened further.”
Today’s US data includes ADP employment and ISM Services PMI.
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