January 14, 2025
- Rumour of moderate tariff hikes to start, improve risk sentiment.
- Producer Prices delivered mixed results.
- USD retreats on profit taking.
FX at a Glance
USDCAD open 1.4382, overnight range 1.4343-1.4388
USDCAD dropped after Bloomberg reported Trump’s team were contemplating adopting a gradual approach to tariffs. They believe a monthly increase would improve their negotiating leverage and lower the risk of a spike in inflation. The reality is, who cares what Trump’s lackeys believe-It’s Donnie’s show and he likes to make a splash.
Nevertheless, the story helped ease the CAD/US 10-year yield spread to -126 bps. USDCAD losses were likely exacerbated due to very large, long dollar, speculative positions.
WTI oil prices traded in a 76.64-77.52 range as selling pressure from talk of a ceasefire in Gaza offset by the polar vortex impacting most of the US and Canada.
There are no Canadian economic reports of note today.
USDCAD Technicals
The intraday USDCAD technicals are modestly bearish while prices are below 1.4405, with a break below 1.4370 targeting 1.4310. A move above 1.4405 suggests more 1.4340-1.4440 range trading.
Longer term, USDCAD is in a 1.4340-1.440 range according to the 2 STD Bollinger bands which represent support and resistance.
For today, USDCAD support is 1.4360 and 1.4340. Resistance is 1.4410 and 1.4400
Today’s Range: 1.4340-1.4440
Chart: USDCAD daily
Tariff Talk is Wishful Thinking
Traders were looking for an excuse to book some profits and they found it in a Bloomberg story that claimed Trump’s team was discussing gradually increasing tariffs. Reportedly, they are discussing increasing levies by 2.5% per month to increase negotiating leverage to avoid a sharp jump in inflation. Deeper into the story, the reader discovers that the proposal has not been presented to Trump.
And therein lies the problem. It’s a bunch of lackeys trying to look and sound important. Trump is a showman of the “Go Big or Go Home” variety and he is not going to want to appear weak. If anything, he may consider gradually reducing tariffs after he follows through on his original plan.
PPI Points to Lower Inflation
US PPI rose just 0.2% m/m in December, compared to 0.4% m/m in November. However, the year over year results were a tad ambiguous. The headline rose 3.3% y/y, which is higher than the 3.0% seen in November, but it was lower than expect. (3.5%). Traders are now looking ahead to Wednesday’s CPI data.
Equity Markets Bounce Back
Chinese equity indexes closed with robust gains on hopes of a gradual approach to new tariffs by the Trump administration. Hong Kong’s Hang Seng index jumped 1.83% while Australia’s ASX 200 gained 0.40%. Japanese stocks tumbled on rate hike chatter with the Topix falling 1.16%. The French CAC 40 index is leading European bourses higher. It is up 1.07% followed by a 0.81% gain in the German Dax. S&P futures are off their best levels but are still 0.46% higher. The US 10-year Treasury yield ticked down to 4.786% from 4.794%. Gold (XAUUSD) see-sawed in a $2663.18-2675.31 band.
EURUSD
NY open 1.0259
Overnight range 1.0233-1.0278
EURUSD direction will continue to be driven by the prevailing US dollar sentiment as there are no actionable Eurozone economic releases this week. Gains will be limited as ECB Chief Economist Philip Lane and Finland Central Bank Governor Ollie Rehn reiterated the need for rate cuts due to lacklustre growth.
GBPUSD
NY open 1.2186
Overnight range 1.2174-1.2250
Sterling rallied on the back of broad US dollar weakness, but traders are keeping an eye on Gilt yields which have drifted up to 4.883% from 4.84% today. Chancellor Rachel Reeves will be addressing the state of public finances in Parliament today. GBPUSD will trade cautiously ahead of Wednesday’s UK CPI, PPI, and Retail Price reports.
USDJPY
NY open 157.84
Overnight range 157.12-158.03
Japanese markets reopened after a long weekend and USDJPY trading was choppy. BoJ Deputy Governor Ryozo Himino said a rate hike is likely if the economic data unfolds as expected.
AUDUSD
NY open 0.6186
Overnight range 0.6171-0.6208
AUDUSD got a bump from the tariff story but those gains have faded and prices are back to where they started the session. Another drop in Australian consumer confidence (actual -0.7%, December -0.2%) didn’t help sentiment.
NZDUSD
NY open 0.5609
Overnight range 0.5581-0.5632
NZDUSD rallied due to broad US dollar weakness and hopes that Trump adopts a gradual approach to tariffs.
USDMXN
NY open 20.6296
Overnight range 20.5750-20.7132
USDMXN retreated due to improved risk sentiment over the implementation of US tariffs. However, the downside is limited ahead of US inflation data on Wednesday and next Monday’s Trump inauguration.
FX high, low, open (as of 6:00 am ET)
China Snapshot
PBoC Fix: 7.1878 vs exp. 7.3161 (prev. 7.1885)
Shanghai Shenzhen CSI 300 rose 2.63% to 3820.54
Chart: USDCNY
Sources: Yahoo Finance, Oanda, Investing.com, Google Finance
