- Carney gets a China deal
- FOMC officials support Powell
- US dollar opens steady
USDCAD open: 1.3893, overnight range 1.3885-1.3899, close 1.3893, WTI 59.97, Gold 4600.17
The Canadian was an after-thought in overnight markets as general FX activity was muted, but the Loonie is getting some good news on the trade front.
Prime Minister Mark Carney is set to return from Beijing with a deal that significantly reshapes bilateral trade terms. China has agreed to cut tariffs on selected canola imports from 75.8% to 15% starting in March, while maintaining steep duties of 100% on canola meal and 25% on lobster, crab, and peas from March 1. In exchange, Canada will sharply reduce tariffs on Chinese electric vehicles to 6.1% from 100%, though only for an initial quota of 49,000 units. That ceiling is scheduled to rise gradually, reaching 70,000 vehicles by 2031.
WTI crude traded in a tight 59.93–60.02 range as markets weighed the fading risk of US military involvement in Iran against rising supply from Venezuelan barrels now being sold by the United States.
Federal Reserve officials appear to have closed ranks following Trump’s decision to unleash the Justice Department against the Fed Chair. Recent remarks suggest policymakers are perfectly comfortable keeping interest rates on hold for an extended period.
Governor Michael Barr described the investigation as a direct attack on the Fed’s independence and reiterated that current policy settings are appropriate.
Kansas City Fed President Jeff Schmid warned that inflation remains too warm and that Trump’s policy agenda risks adding further fuel to economic momentum.
San Francisco Fed President Mary Daly echoed those views, saying monetary policy is already well positioned.
Asian equity markets finished mostly lower, with Australia the lone bright spot as the ASX 200 advanced 0.48%. Japan’s Topix slipped 0.28%, while Hong Kong’s Hang Seng Index fell 0.29%.
As of 7:30 am, European markets are in the red except for the UK FTSE 100, which is flat. France’s CAC-40 has dropped 0.74% and Germany’s DAX is down 0.30%. S&P 500 futures are up 0.15%, the US Dollar Index sits at 99.25, and the US 10-year Treasury yield is 4.186%.
EURUSD traded in a narrow 1.1603–1.1623 range amid a dearth of fresh catalysts. Analysts at ING argue that stable ECB policy rates near 2.0% continue to pressure the euro, as it is increasingly used as a funding currency for carry trades into higher-yielding emerging market assets. German December inflation was confirmed at 2.0% y/y and largely ignored by markets.
GBPUSD moved within a 1.3371–1.3413 range and is pressing the upper end of that band in early New York trade. The break of the November uptrend line last week has tilted the short-term outlook to the downside while prices remain below 1.3450. Yesterday’s UK GDP data beat expectations but still painted a picture of a fragile economy that is likely to struggle through the year ahead.
USDJPY traded defensively in a 157.98–158.70 range as the risk of official FX intervention increased and speculation grew that the Fed could be drawn into coordinated action. Finance Minister Satsuki Katayama reminded markets that a joint statement with the US signed last September was “extremely significant” and included explicit language on intervention. Additional pressure came from renewed talk that the Bank of Japan could raise rates as early as April.
AUDUSD traded quietly in a 0.6695–0.6710 range. The pair continues to draw support from firmer commodity prices, particularly iron ore, along with the Reserve Bank of Australia’s still-hawkish tone.
The data calendar today features Canadian housing starts alongside US capacity utilization and industrial production figures.
