USD / CAD - Canadian dollar takes flight
- ECB rate cut of 25 bps fully priced in.
- Canada may retaliate to steel tariff increase.
- US dollar is soft due to rising Fed rate cut hopes
USDCAD: open 1.3664, overnight range 1.3659-1.3684, close 1.3679, WTI 65.10, Gold 3388.94
The Canadian dollar rallied along with the rest of the G-7 major currencies following far weaker than expected US ADP employment data.
ADP reported that the US only added 37,000 new jobs compared to estimates for a137,000 increase. Then the ISM Services index missed the forecast and came in at 50.7 rather than 52.3. It didn’t take long for investors to conclude that the US economy was in trouble and that the Fed would have to cut rates more aggressively.
That conclusion led to widespread US dollar selling and a drop in the US 10-year Treasury yield to 4.336% today from 4.47% yesterday.
The Bank of Canada surprised no one when it left its benchmark rate unchanged. Policymakers pointed to uncertainty around tariffs and the impact on the economy for issuing vague forward guidance.
Something has gone wrong in the Trump/Musk universe. Their bromance hit a speed bump after Musk took issue with a projected $2.5 trillion deficit surge tied to the proposed legislation. He posted, “A new spending bill should be drafted that doesn’t massively grow the deficit. America is in the fast lane to debt slavery.”
Trump, meanwhile, remains fixated on rate cuts. He unleashed a classic ALL CAPS tweet after the latest ADP data, declaring “Too Late” and demanding Powell slash rates now, even citing Europe’s nine rate cuts as a benchmark. Powell remains unmoved.
EURUSD traded in a 1.1405–1.1435 range and held onto yesterday’s rally, which was driven by rising expectations for a Fed pivot. Attention has shifted to today’s ECB meeting, where a 25 bp cut is a foregone conclusion. The tone of the accompanying statement is the wildcard, especially if there’s any sign of internal dissent, which could suggest limited appetite for further easing. Option-related flows could create noise around the 10 am ET expiry, with roughly $13.2 billion in strikes between 1.1350 and 1.1430 set to roll off.
GBPUSD ranged between 1.3541 and 1.3575, mirroring broader US dollar dynamics. The currency continues to find support from selling pressure on EURGBP, which stems from the interest rate divergence between the ECB and the Bank of England. As long as prices remain above 1.3460, the bullish trend remains intact.
USDJPY consolidated losses within a 142.53–143.40 range and has a bearish tone while trading below 143.90. A shift toward risk-on sentiment, fueled by rising Fed rate cut bets, helped unwind recent safe-haven yen demand. Falling US Treasury yields also contributed, with the 10-year dipping to 4.345% from 4.47% a day earlier.
AUDUSD traded between 0.6486 and 0.6515 and sits near the midpoint of its rising channel bounded by 0.6470 and 0.6560. Gains were sparked by a softer US dollar driven by speculation of faster Fed easing and a modestly stronger-than-expected China Caixin Services report.
Today’s US nonfarm payrolls report is in focus.
