Canada Dollar Strengthens on Tariff Relief, Scaled-Back Rate Cut Expectations — Market Talk

The Canadian dollar strengthened by over 1%, reaching 1.42 per USD, its highest level in about a month, following news that US President Donald Trump plans to direct federal agencies to study trade relations with China and neighboring countries without imposing new tariffs on his first day in office.

The announcement provided temporary relief to markets, which had braced for immediate tariff measures from the new administration.

Meanwhile, the Bank of Canada's dovish stance, with another 25 bps rate cut anticipated this month, contrasts with the Federal Reserve's relatively hawkish policy.

This divergence has widened the yield gap between US and Canadian government bonds, attracting capital flows toward the US dollar and keeping pressure on the Loonie.

Earlier this month, the Canadian dollar hit its weakest level since 2016 due to these dynamics.

USDCAD decreased to a 4-week low of 1.43.

Over the past 4 weeks, US Dollar Canadian Dollar lost 0.61%, and in the last 12 months, it increased 5.97%.

The Canadian dollar faces a volatile week with risks skewed towards losses given Donald Trump's trade tariff threats ahead of his presidential inauguration later and Canada's political uncertainty, Monex Europe analysts say in a note. "While events in the U.S. are likely to dictate price action for [USD/CAD], the size of any moves will be exacerbated by political dysfunction in Canada," they say. Justin Trudeau's resignation as Canadian Prime Minister leaves the country without an effective government at a "highly inopportune moment." This is unlikely to change any time soon. Monex expects USD/CAD to rise to 1.50 before mid-year. USD/CAD falls 0.1% to 1.4471, having reached its highest level since March 2020 at 1.4485 overnight, according to LSEG.(renae.dyer@wsj.com)

The latest Market Talks covering U.S. politics. Published exclusively on Dow Jones Newswires throughout the day.

0421 ET - The Canadian dollar faces a volatile week with risks skewed towards losses given Donald Trump's trade tariff threats ahead of his presidential inauguration later and Canada's political uncertainty, Monex Europe analysts say in a note. "While events in the U.S. are likely to dictate price action for [USD/CAD], the size of any moves will be exacerbated by political dysfunction in Canada," they say. Justin Trudeau's resignation as Canadian Prime Minister leaves the country without an effective government at a "highly inopportune moment." This is unlikely to change any time soon. Monex expects USD/CAD to rise to 1.50 before mid-year. USD/CAD falls 0.1% to 1.4471, having reached its highest level since March 2020 at 1.4485 overnight, according to LSEG.(renae.dyer@wsj.com)

0417 ET - Incoming U.S. President Donald Trump's policies are expected to a double-edge sword, which might eventually weaken the Federal Reserve's scope to ease monetary policy, says Swissquote Bank's Ipek Ozkardeskaya. Trump's pro-growth policies and deregulation are expected to benefit the U.S. economy, the senior analyst says. His tariff policies, however, will certainly lead inflation higher and make it more difficult for the Federal Reserve to cut interest rates, she says. "In addition, exploding debt levels will likely further push the borrowing costs higher," Ozkardeskaya says. (emese.bartha@wsj.com)

0415 ET - European natural-gas prices fall ahead of President-elect Donald Trump's inauguration later on Monday, as traders wait to see the impact of future policy on the market. Trump is expected to sign a flurry of executive orders shortly after being sworn in, potentially including the lifting of a moratorium on new permits to export liquefied natural gas. His handling of sanctions against Russia's energy sector is also expected to have a significant impact on gas supplies. Meanwhile, the EU is reportedly considering import restrictions on Russian LNG as part of a new package of sanctions against the Kremlin. The benchmark Dutch TTF contract trades 1.5% lower at 46.17 euros a megawatt hour, but is still 4.5% higher on month amid fast depleting inventories. (giulia.petroni@wsj.com)

0407 ET - The euro looks at risk of falling on the prospect of immediate trade tariffs following Donald Trump's presidential inauguration later, ING's Chris Turner says in a note. Perhaps the euro should be worried that the online prediction markets only have low pricing of tariffs on the EU this week, he says. Equally, foreign-exchange markets are unlikely to be fully priced for universal tariffs and this would hit the euro. The euro could fall to $1.0225, he says. The euro last trades up 0.3% at $1.0312. Trump is due to be sworn in for his second term around 1700 GMT. (renae.dyer@wsj.com)

0358 ET - Credit markets are likely to focus on the U.S. President Donald Trump's executive orders expected to be signed following the inauguration ceremony at 1700 GMT, UniCredit analysts say in a note. "Depending on the scope of the orders, pressure on rates could resurface, which could dampen credit sentiment," they say. Credit assets have benefited from recent strong bank earnings, while this weekend's Israel-Hamas ceasefire has also been credit positive, the analysts say. (miriam.mukuru@wsj.com)

0334 ET - Yields on U.K. government bonds edge higher ahead of the inauguration of the U.S. President elect Donald Trump at 1700 GMT. Risks appear skewed towards higher yields in the coming days, UniCredit analysts say in a note. "Nothing seems to have captured as much investor attention as speculation as to what Mr. Trump will announce immediately after being sworn in," they say. The 10-year gilt yield climbs 1 basis point to 4.659%, Tradeweb data show. Longer-dated gilt yields fell sharply last week, reversing a jump to multi-year highs the previous week which lifted 10-year yields to 4.921%, their highest since 2008. (miriam.mukuru@wsj.com)

0318 ET - The dollar eases ahead of Donald Trump's inauguration as U.S. President later. Following four months of dollar gains on optimism that Trump's second term as president could boost the currency, it looks to exposed to some declines in a "buy the rumor, sell the fact" reaction, ING's Chris Turner says in a note. However, there should be plenty of dollar buyers on any dips and the DXY dollar index could rise above 110.000 this week, he says. Trump's proposed policies including tariffs and tax cuts are expected to lift inflation and reduce the scope of interest-rate cuts by the Federal Reserve. Trump is expected to be sworn in as president around 1700 GMT.The DXY falls 0.3% to 109.029. (renae.dyer@wsj.com)

0314 ET - Bond markets have already begun to reprice in anticipation of more expansionary fiscal policies, deregulation, and easier financial conditions, J.P. Morgan Asset Management's Iain Stealey says. This repricing has prompted the Federal Reserve to adopt a more cautious stance on monetary easing, the international CIO for fixed income says in a note. U.S. 10-year Treasury yields have recently risen to a 14-month high and the yield curve has steepened. The cash U.S. Treasury market is closed on Monday, with the market focusing on Trump's inaugurational speech, with potential hints at fiscal policies, and on executive orders. (emese.bartha@wsj.com)

0239 ET - With bond markets showing greater sensitivity to inflation, near-term risks stem from Trump's first actions as President following the inauguration day, Citi Research strategists say in a note. Trump will be inaugurated on Monday and markets await hints at fiscal policies as well as executive orders. However, Citi's strategists think that in the eurozone, the January issuance pressure may now be priced in. January is traditionally a busy month for eurozone government-bond issuance as countries start annual funding programs. A high number of syndicated issues accompany scheduled bond auctions. The 10-year Bund yield edges higher 0.4 basis point to 2.527% in early trade, according to Tradeweb. (emese.bartha@wsj.com)

0237 ET - The FTSE 100 is expected to open 19 points lower, or 0.2%, according to IG. The index closed up 113 points, or 1.4%, to 8505 points on Friday. The market is waiting for a host of executive orders that are likely to be signed on the first day of Donald Trump's presidency following his inauguration around 1700 GMT, Jefferies economist Mohit Kumar says in a note. Focus will be on tariffs, immigration and deregulation policies, he says. "We are still in the camp that Trump fiscal and tariff policies will not be as bad as feared by the market." (renae.dyer@wsj.com)

0226 ET - Bitcoin rises to a record high ahead of Donald Trump's inauguration as U.S. President later. Traders are optimistic that Trump will deliver policies that support digital assets as he has vowed to make the U.S. the crypto capital of the world. "Crypto investors have several things to look forward to in the coming weeks including a crypto-friendly administration and strong February seasonality for bitcoin," Ned Davis Research strategists say in a note. Trump will be sworn in for his second term as U.S. president at around 1700 GMT. Bitcoin rises to a high of $109,071, according to LSEG. (renae.dyer@wsj.com)

0206 ET - Oil prices are likely to face challenges when U.S. President-elect Trump takes office, Philip Nova analyst Priyanka Sachdeva says in a note. Although Trump is expected to boost drilling permissions within the U.S., his administration could set a harsh ban on Iranian oil that would likely push up oil prices, she says. Trump's action on tariffs on China will also be closely watched by the oil markets, she adds. The world's largest importer of crude oil is already struggling to boost economic activity, which may significantly impact its fuel demand, she says. Front-month WTI crude oil futures are 0.1% lower at $77.80/bbl; front-month Brent crude futures are down 0.4% at $80.50/bbl. (amanda.lee@wsj.com)

USDCAD increased to a near 5-year high of 1.45.

Over the past 4 weeks, US Dollar Canadian Dollar gained 0.12%, and in the last 12 months, it increased 7.27%.

USDCAD increased to a 4-week high of 1.45.

Over the past 4 weeks, US Dollar Canadian Dollar gained 0.11%, and in the last 12 months, it increased 7.25%.