CAD blasted as Trudeau talks tariffs

John Hardy

Head of FX Strategy

Late yesterday, Canada’s prime minister aired the risk that Canada would be forced to enact its own steel tariffs to prevent Canada acting as a conduit for dumped steel that is then sold into the US economy. USDCAD ripped back higher towards the 1.2950 level as the market considers the consequences for Canada caused by Trump’s “carveouts” on tariff policy. 

The firing of US Secretary of State Tillerson came within a couple of minutes of an in-line US CPI release, somewhat confusing the reaction function to that release. With no surprises in the inflation data, it leaves the market with fairly neutral expectations going into next week’s FOMC meeting. US yields have been steady to lower all along the curve, especially at the long end, with the 30-year US benchmark near its lowest in a month after yesterday’s 30-year T-bond auction.

Sweden’s CPI is in focus today as the Riksbank wrings its hands on whether inflation will ever rise enough to allow a policy. One factor certainly likely to drive ongoing lowflation or worse is the potential arrival of Amazon to the Nordics this year. The Riksbank happy to keep a dovish message on policy as long as inflation not rising, but at some point, valuation has to matter – not entirely where that point is, but SEK very cheap at these levels versus the euro.

The market’s attempt to put back on the “Goldilocks trade” has already misfired a bit, as local highs in the US S&P 500 stock index have been rejected amid signs of faltering market breadth. Volatility from Trump and the risks of another round of tariffs aimed more specifically at China are an overarching risk. An interesting US retail sales data point for February is up today after a couple of weak months in December and January. The US consumer is one to watch this year as we weigh tax cuts versus near record-low savings rates.

Note that New Zealand is reporting GDP late this evening (for those of us in Europe at 22:45 CET).

Chart: USDJPY
USDJPY was breaking higher yesterday in an apparent squeeze/running of the stops ahead of the US Feb. CPI data, which came in exactly in line with expectations at 1.8% core YoY/ 2.2% headline. The selloff from the local highs saw added volatility on the news of the firing of US Secretary of State Tillerson. The bearish shooting star candlestick is a bearish hook for fresh involvement in the downtrend, with the 107.00-25 area as the new resistance/upside pivot.

USDJPY March 14 2018

The G-10 rundown

USD: the greenback in wait-and-see mode on incoming data and the FOMC meeting next week. Minor pivots taken out pointing the needle lower for the greenback, but we’re still within ranges nearly everywhere.

EUR: Euro relative strength was notable yesterday, though sterling is outperforming lately. Interesting to watch the relative performance of EURJPY if risk appetite weakens again, as we have seen the pair contending with the 200-day moving average (131.60) and the 132.00 recent highs.

JPY: JPY bouncing as risk appetite fades and yields generally drop. Broad strength likely if these factors continue to support. GBP: sterling strength fairly impressive here, but EURGBP has been one long string of non-trending churn over the last nearly six months as the fate of Brexit simply refuses to crystallise.

CHF: EURCHF looks fairly resilient near 1.1700, given the relative CHF-supportive backdrop of EU yields falling again and the negative attention from the Italian election outcome.

AUD: the Aussie perhaps celebrating stronger Chinese data overnight, but it is our conviction that China’s economy is at risk of slowing and may already be doing so, based on the credit impulse. The relative strength of AUDCAD getting remarkably stretched, but no signs of weakness just yet.

CAD: weak as CAD absorbing considerable negativity on the implications of US tariffs for Canada’s own trade policy. But if the trade hostility goes global, CAD looks unfairly singled out.

NZD: kiwi traders not sticking their necks out lately – may be forced to with tonight’s Q4 GDP report if there are any significant surprises. Market looking for the first uptick in YoY growth in six quarters.

SEK: an important test for SEK today over the Swedish CPI. There is plenty of room for a consolidation in EURSEK if the market sees in-line data or a modest upside surprise as it will take considerable doing to reverse the trend.

NOK: a big day tomorrow for NOK as rate expectations have ramped considerably ahead of tomorrow’s Norges Bank meet in expectation of an eventual rate hike.

Upcoming Economic Calendar Highlights (all times GMT)

1000 – Eurozone Jan. Industrial Production 
1045 – ECB’s Constancio to speak 
1230 – Canada Feb. Teranet/National Bank Home Prices 
1230 – US Feb. Retail Sales 
1230 – US Feb. PPI 
1430 – US Weekly DoE Crude Oil/Product Inventories 
1615 – ECB’s Coeure to speak 
2145 – New Zealand Q4 GDP 

You can access both of our platforms from a single Saxo account.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)