Hopes For Another Tariff Delay Leave Canadian Dollar, Mexican Peso Exposed — Market Talk

The US dollar fell against its major trading partners early Monday, except for a gain versus the yen, to start a busy week of economic data releases that includes President Donald Trump's address to Congress and ends with the February employment report and an appearance by Federal Reserve Chairman Jerome Powell, both on Friday.

Manufacturing data for February from S&P Global and the Institute for Supply Management are due to be released Monday at 9:45 am ET and 10:00 am ET, respectively. Construction data for January are also due to be released at 10:00 am and the Atlanta Fed is expected to update its gross domestic product growth Nowcast estimate for Q1 around midday.

Tuesday's highlights include weekly Redbook same-store sales and consumer sentiment data from RealClearMarkets. President Trump is due to address Congress in the evening.

ADP private payrolls data, services data and the Fed's Beige Book report are due to be released Wednesday.

Thursday's schedule includes Challenger layoffs, weekly jobless claims, revised productivity data, and wholesale inventories.

After the February nonfarm payrolls employment report Friday, there are several scheduled appearances by Federal Reserve officials, highlighted by Powell, before their 'quiet period' begins Saturday. The St. Louis Fed is also due to update its GDP Nowcast estimate Friday, followed by consumer credit data in the afternoon.

A quick summary of foreign exchange activity heading into Monday:

rose to 1.0465 from 1.0374 at the Friday US close and 1.0405 at the same time Friday morning. The Eurozone's manufacturing purchasing managers' index improved in February but still indicated contraction, while Eurozone consumer prices rebounded from a decline in the previous month, data released earlier Monday showed. The next European Central Bank meeting is scheduled for Thursday, when a 25 basis point rate reduction is expected.

rose to 1.2676 from 1.2580 at the Friday US close and 1.2598 at the same time Friday morning. The UK's manufacturing PMI declined to indicated faster contraction in February while mortgage lending increased in January, according to data released earlier Monday. The next Bank of England meeting is scheduled for March 20.

rose to 151.2441 from 150.5392 at the Friday US close and 150.4501 at the same Friday morning. Japanese manufacturing PMI rose modestly in February but still indicated a contraction in the sector. The next Bank of Japan meeting is scheduled for March 18-19.

fell to 1.4440 from 1.4466 at the Friday US close but was up from a level of 1.4437 at the same time Friday morning. Canadian manufacturing PMI for February is due to be released at 9:30 am ET. The next Bank of Canada meeting is scheduled for March 12.

The biggest market driver on Monday will be any updates on United States tariffs on Mexico and Canada, as 25% duties are due to come into effect on Tuesday, said ING.

Canadian and Mexican officials are attempting to strike another last-minute deal, and U.S. officials have also floated the idea of imposing smaller than 25% tariffs, wrote the bank in a note. One possibility is that — alongside increased commitment to fighting illegal drug traffic — President Donald Trump will require both countries to replicate U.S. tariffs on China, which may be hiked from 10% to 20%.

The Canadian dollar (CAD or loonie) and Mexican peso (MNX) depreciated at the back end of last week but are still not pricing 25% tariffs as the baseline, stated ING. The foreign exchange market saw Mexico as more likely to avert tariffs over Canada a month ago and appears to have a similar feeling now, having penalised the loonie more than the peso in the past week.

Monday's events will be inevitably binary for foreign exchange, but given that markets are still leaning toward another delay in tariffs, there are more downside risks than upside risks for CAD and MXN on Monday, added the bank. and are currently trading 2.5% and 3.5% off their Feb. 3 highs.

ING will be looking for moves above 1.460 and 21.0 as key indicators of a pessimistic shift in sentiment on Monday. The bank's base case remains that 25% tariffs will be averted, although ING admits it remains a very close call.

The Canadian dollar is expected to depreciate against the U.S. dollar ahead of the U.S. tariffs expected to take effect on Tuesday, Monex Europe says in a note. Investors are likely to shift focus to the impact of U.S. tariffs on Canadian exports and away from last week's improved GDP data, Monex says. "We suspect [Canadian dollar] traders will be watching the approach of [Tuesday's tariff] deadline with apprehension," they say. The U.S. dollar is likely to strengthen versus the Canadian dollar unless the implementation of U.S. tariffs on Canada is delayed, the analysts say. USD/CAD falls 0.1% to 1.4430, having hit a three-week high of 1.4474 on Friday, FactSet data show. (miriam.mukuru@wsj.com)

The Canadian dollar held around 1.44 per USD, halting its retreat toward its 22-year low of 1.455 recorded on January 31st, as better-than-expected economic growth limited the Bank of Canada’s urgency for further monetary policy easing.

The Canadian economy expanded at an annualized 2.6% in Q4, the most since Q1 2023, following an upwardly revised 2.2% growth in Q3 and beating market forecasts of 1.9%, alleviating concerns of an economic downturn previously flagged by the BoC and proving the easing cycle effective.

However, renewed U.S. tariff threats, with President Trump confirming 25% tariffs on Canadian goods and 10% on energy exports set for March, have cast uncertainty over Canadian trade, while falling crude oil prices at two-month lows further dampen demand for the loonie given Canada's reliance on oil exports.

The earlier risk of trade disruptions had already driven the Bank of Canada to indicate that it is ready to adjust policy to support domestic growth.

The US dollar rose against its major trading partners early Friday, except for a decline versus the Canadian dollar, before a busy day that starts with personal income, spending and price data and advance trade data, all for January at 8:30 am ET.

The Chicago purchasing managers' index for February is set to be released at 9:45 am, followed by services data for February from the Kansas City Federal Reserve at 11:00 am ET. Updates from gross domestic product growth Nowcast data from the Atlanta and St. Louis Fed banks are due around midday.

A quick summary of foreign exchange activity heading into Friday:

fell to 1.0404 from 1.0406 at the Thursday US close and 1.0479 at the same time Thursday morning. There are no Eurozone data on Friday's schedule. The next European Central Bank meeting is scheduled for March 5-6.

fell to 1.2598 from 1.2611 at the Thursday US close and 1.2678 at the same time Thursday morning. UK home prices rose more than expected in February, though the year-over-year rate slowed from the previous month, data released overnight showed. The next Bank of England meeting is scheduled for March 20.

rose to 150.4230 from 149.6896 at the Thursday US close and 149.6783 at the same time Thursday morning. Tokyo consumer price growth, an early indicator of Japanese consumer prices, slowed in February, while Japanese industrial production declined in the same month and housing starts fell in January. The next Bank of Japan meeting is scheduled for March 18-19.

fell to 1.4433 from 1.4441 at the Thursday US close but was above a level of 1.4343 at the same time Thursday morning. Canadian GDP data for Q4 is due to be released at 8:30 am ET, followed by the Canadian budget balance for December at 11:00 am ET. The next Bank of Canada meeting is scheduled for March 12.

rallied Thursday as United States President Donald Trump outlined a tariff schedule that explicitly includes duties on Canada and Mexico from next Tuesday, said ING.

The pair is currently embedding around 2% of risk premium, according to the bank's short-term fair value model. That is above the 1.5 standard deviation, but still well below the nearly 4% peak risk premium that was embedded in on Feb. 3.

Back then, ING published a note to discuss its view on the Canadian dollar (CAD or loonie) under the assumption that 25% tariffs would go ahead. Most of those considerations stand, and depending on how long tariffs remain in place, a move to 1.50 is a definite possibility, stated the bank.

The difference this time is that markets are treating Trump's tariff threat with more skepticism, refusing to price in the full tariff effect and partly betting on another last-minute deal, pointed out ING.

The bank still sees upside risks to on Friday unless there are any reports of a de-escalation. ING sees 1.45 as the level that would mark a shift to markets pricing in the tariff risk as a base case.

If duties are levied on Tuesday, then ING will look at 1.480 as the key resistance to be tested.