- BoC expected to cut rates by 25 bps-FOMC to leave them unchanged.
- Lunar New Year begins in Asia-many centers are closed.
- USD trades drifting ahead of FOMC meeting.
USDCAD: open 1.4429, overnight range 1.4392-1.4434, close 1.4402, WTI $73.03, Gold, $2758.27
The Canadian dollar came under renewed pressure yesterday and it continued in overnight trading. The Canadian dollar is suffering from President Trump’s threat of 25 % tariffs on Canadian imports which are supposed to come into effect on Saturday. The White House press secretary said as much yesterday.
If Trump follows through on his threat, the Canadian economy would be devastated, particularly in Ontario where auto and part manufacturers are highly integrated with their US counterparts. The tariffs would be bad for both sides, but the US is better positioned to deal with the disruption to the size and diversification of its economy.
The Bank of Canada is widely expected to cut its benchmark rate by 25 bps to 3.00% today. The statement and press conference will not offer much insight into future monetary policy actions because the tariff threat raises too many questions.
Meanwhile the Fed is expected to leave its rate unchanged at 4.5%. There is no press conference.
EURUSD traded in a 1.0394-1.0444 range with prices weighed down by the risk of U.S. tariffs, a dovish ECB outlook and the looming /FOMC decision. Sweden’s Riksbank cut its benchmark rate by 25 bps to 2.25%, as expected, but hinted further rate cuts may not be forthcoming.
GBPUSD drifted in a1.2417-1.2464 band. Traders are eagerly awaiting a speech by Chancellor Rachel Reeves who is set to outline her economic strategy and the FOMC rate decision.
USDJPY traded sideways in a155.00-155.79 range head of the FOMC meeting. Price action has stalled while traders weigh the possibility of further BoJ rate hikes against persistent intervention fears. Minutes from the BoJ’s December 19 meeting offered little fresh insight, though policymakers appear increasingly open to the idea that inflation could rise and will continue monitoring economic data.
AUDUSD drifted lower in a 0.6223-0.6256 band following weaker-than-expected December inflation data. The RBA’s trimmed mean CPI rose 3.2% y/y in Q4 (forecast 3.3%, prior 3.6%), while headline CPI increased 2.4% y/y, down from 2.8% in November. Westpac now believes that the RBA will lower rates by 25 bps in February. CBA and ANZ banks were already forecasting such an outcome.
Today’s US data includes the Goods Trade Balance and Wholesale Inventories.
