January 6, 2025
- Canadian political drama weighing on USDCAD
- Light economic calendar from US today.
- USD opens on the defensive to start the week.
FX at a Glance
USDCAD open 1.4373, overnight range 1.4359-1.4451, close 1.4448
USDCAD plunged overnight and extended the drop in early NY taking USDCAD down to 1.4299. Rumors of Trudeau’s imminent resignation were a large factor behind the sell-off.
Justin Trudeau was a disaster. He presided over nine years of massive spending that doubled the federal debt to $1.173 trillion from $612 billion and turned a near-balanced budget in 2015-2016 into nine years of jumbo-sized budget deficits. He turned a robust resource-based economy into a green-energy transitioning money pit that turned high-paid energy sector jobs into low-wage service gigs. And just to rub salt into the wound, he slapped an ever-increasing carbon tax on pretty much everything, raising the cost of living in Canada. His actions fueled an immigration and housing crisis leading to massive homeless camps in every major city.
Trudeau managed to single-handedly destroy Canada’s global reputation. The leaders of India, China, Australia, Brazil, France, Ukraine, and Saudi Arabia found him naïve, vapid, weak, and idealistic. Incoming US President Donald Trump described Trudeau as dishonest while openly mocking him in recent days.
Traders are viewing the end of the Trudeau era as a good thing. They are hoping that a massive Conservative majority can repair Canada’s finances and global reputation while jump-starting the economy.
Alas, it is not that simple. For starters, Conservative Leader Pierre Poilievre talks a good game, but his entire career has been in politics. He is a “paper-pusher” personified, His sheltered government career means he is merely a spectator and not a participant in the day-to-day grind experienced by most Canadians attempting to earn a living.
Nevertheless, the key driver of USDCAD is Donald Trump. If he follows through on his tariff threat, the Canadian economy will plunge into a recession. The BoC will be forced to cut rates deeper while the FOMC leaves US rates unchanged or cuts at a slower pace.
USDCAD Technicals
The intraday USDCAD technicals are bearish following the move below the December 5 uptrend line at 1.4405. USDCAD failed to break above resistance in the 1.4450 area, and its subsequent retreat below 1.4405 suggests further losses to 1.4305. A move above 1.4410 would negate the downward pressure.
Longer term, USDCAD remains bullish while trading above 1.4210, with the overnight price action serving to alleviate a USDCAD overbought condition.
For today, USDCAD support is 1.4305 and 1.4250. Resistance is 1.4380 and 1.4420.
Today’s Range: 1.4270-1.4370.
Chart: USDCAD 4 hourly
Welcome to 2025
Today is the first trading day of the new year for many traders who return to their desks following an extended holiday break. The US dollar is trading defensively with the US dollar index DXY dropping from 108.91 to 107.84 which lifted S&P 500 futures by 0.53%, while the US 10-year Treasury yield eased from 4.633% to 4.594%. European bourses are trading higher except for the UK FTSE 100 index which is down 0.22%.
EURUSD
EURUSD rallied hard, rising from 1.0295 to 1.0433. German and Eurozone Services PMI data were a tad better than expected but not nearly enough to justify the magnitude of today’s rally. The gains may just be down to profit-taking as the longer-term prognosis suggests a test of parity is almost a certainty.
GBPUSD
GBPUSD rallied from 1.2414 to 1.2548 despite modestly softer-than-anticipated UK Services PMI (Dec. 51.1 vs forecast 51.4, previous 51.4). One of the reasons for the gain is a report from the British Chamber of Commerce that suggests more than half of survey respondents plan to hike prices in response to “rising taxes and costs.” That would be enough to derail an expected Bank of England rate cut on February 5.
USDJPY
USDJPY traded in a 157.17-157.97 range underpinned by elevated US Treasury yields. Traders ignored comments by BoJ Governor Ueda who said rate hikes were likely but the timing was uncertain.
AUDUSD and NZDUSD
AUDUSD rallied on the back of broad US dollar weakness, rising from 0.6207 to 0.6289. Prices got an added lift after China’s PBoC fixed the yuan at a much higher-than-expected level and from modestly higher iron ore prices.
NZDUSD traded in a 0.5610-0.5675 range with prices tracking broad Aussie dollar moves.
USDMXN
USDMXN dropped to 20.7072 from 20.6669 on the back of broad US dollar weakness. The price action is just noise ahead of Trump’s inauguration on January 20. Mexican Consumer confidence was little changed in December (actual 47.3, November 47.4) and ignored.
FX high, low, open (as of 6:00 am ET)
China Snapshot
PBoC Fix: 7.1876 vs exp. 7.3035 (prev. 7.1878)
Shanghai Shenzhen CSI 300 fell 0.16% to 3768.97
The PBoC appears to be pushing back against analyst forecasts predicting USDCNY at 7.60 by year end, thanks to Trump’s latest Trade war plans. Policymakers followed up FX comments like “the resilience of the foreign exchange market” and “resolutely” preventing one-sided trading, with FX intervention and setting the Fix below 7.20. Officials also promised to “crack down on behaviour that disrupts the market.”
Chart: USDCNY and USDCNH -Daily 1 year.
Sources:
Yahoo Finance, Oanda, Investing.com
