– US/CAD bilateral trade negotiations are in the spotlight.
– Hong Kong Monetary Authority says it is diversifying from US assets.
– US dollar claws back some losses.
USDCAD: open 1.3829, overnight range 1.3808-1.3845 close 1.3824, WTI 54.49, Gold 3312.08
The Canadian dollar remains range bound but with some selling pressure evident ahead of Prime Minister Carney’s meeting with President Trump in the White House.
This is certainly going to be an interesting get-together. Yesterday, Trump professed not to know why Carney was coming to meet him, much to the amusement of his lackeys in attendance. However, Carney is no stranger to high level meetings and the man is known for having a big ego and a volcanic temper. That sets the stage for an entertaining show.
Meanwhile, Trump’s trade war and “America First” attitude is not being received well by many Asian governments, and they are reacting. The Hong Kong Monetary Authority said it is diversifying out of US dollar assets by shortening the duration of its US Treasury holdings and increasing exposure to other currencies. The move came after the Taiwan dollar surged 10% between Friday and Monday, which in turn lifted the Malaysian ringgit, South Korean won, and Singapore dollar. Trump’s stated preference for a weaker greenback may get a boost if more Asian nations holding large USD reserves follow suit.
Asian equity markets reacted positively to the return of holiday-absent investors. Japan’s Topix rose 0.31%, Hong Kong’s Hang Seng added 0.70%, and Australia’s ASX 200 was unchanged. European stocks were less upbeat, led by a 1.32% drop in Germany’s DAX on concerns about political stability. The French CAC 40 fell alongside S&P 500 futures, both down 0.70% as of 6:20 am EDT. Gold advanced to 3378.42 from 3323.50 on safe-haven demand while the US 10-year yield was steady at 4.34%. US March trade data is due this morning, but results are likely skewed by a rush in pre-tariff orders.
EURUSD traded in a 1.1280-1.1349 range in a whippy session that still held inside Monday’s band. The euro bounced around after news that Germany’s Conservative leader Friedrich Merz failed to secure enough parliamentary votes to become Chancellor. Although his coalition fell just six votes short, analysts expect he’ll get there after more negotiations. Weaker-than-expected PMI figures and a soft Eurozone PPI print further pressured the single currency.
GBPUSD traded in a 1.3260-1.3334 range, drifting lower in Asia before grinding higher into the NY open. Despite the upcoming Bank of England decision on Thursday, trader interest appears subdued with the move fully priced. UK PMI data offered little support as it remained stuck in contraction territory. S&P noted that April’s business activity was hit by heightened uncertainty and weak export demand, which fell to its lowest level since early 2021.
USDJPY ranged between 142.91 and 144.28 in volatile trading. Prices initially rallied before sliding as traders digested the implications of several Asian economies diversifying away from US assets. Even though Japan’s Finance Minister Kato downplayed the idea of using US Treasury holdings as leverage in trade talks, the mere mention has sparked speculation. Rate policy divergence between the Fed and BoJ is also playing a role, with expectations of Fed cuts clashing against ongoing BoJ tightening.
AUDUSD moved sideways in a 0.6438-0.6472 band. The Aussie remains trapped in a narrow channel with little directional conviction. Uncertainty over the US-China trade relationship and speculation that the RBA may be forced to cut rates earlier than expected is dampening enthusiasm.
