USD loses shine as global markets shift focus

Today's expected range for the Canadian Dollar against the major currencies:

US Dollar        1.4300-1.4520

Euro                 1.5200-1.5530

Sterling            1.8370-1.8600

WTI Oil (opening level) $67.14

The CAD/USD is opening at 1.4395 ( 0.6947 )

Another whacky and wide day. USD/CAD traded between 1.4382 and 1.4540 in the last 24 hours. 150 bps swing is not a normal day.

Really difficult to see where the next big move will come from. It all depends on who is speaking and what they are saying. But the USD index is a good indication as we all watch the number drop below 105 for the first time since Trump was elected. The shine is coming off the USD worldwide as other countries step up to defend their economies.

Headlines

·    Trump speech underwhelms. In a 100-minute-long address to Congress, Trump defended his economic plans and called for a wide range of tax cuts and spending reductions, and for an increase on border spending. He also called for a halt to CHIPS and Science Act semiconductor manufacturing subsidy program and repeated the 25% tariffs for aluminium, copper and steel. While Trump didn’t address the new tariffs on Canada and Mexico other than criticizing the two countries on their trade surpluses with the USA and allowing fentanyl to cross the border, US Commerce Secretary Lutnick said the Trump administration could announce a pathway for tariff relief on Mexican and Canadian.

·    Germany goes big on fiscal. Leader of Germany’s CDU party and coming Chancellor Friedrich Merz will reconvene the Bundestag before the newly elected Bundestag sits next month to present a bill, together with likely coming government coalition partner, the SPD, that would exempt defence spending above 1% of GDP from “debt brake” rules. Another bill will introduce a constitutional amendment to create a EUR 500 billion fund for infrastructure- that would be for the next 10 years. Other measures would lift some limitations on debt rules at the state level. This will require a two-thirds majority to pass the Bundestag, which will require support from the Green party.

·    China announces 2025 growth target. China’s Premier Li Qiang announced that China will pursue a 5% GDP growth target for this year, saying that it would be difficult. The top priority will be boosting consumption, the first time this priority has been named since Xi Jinping became president in 2012. The growth target will require record government deficits and local government debt issuance, some of it to subsidize consumer spending.

·    European Commission President Ursula von der Leyen announced plans to boost Europe's defence industry, potentially mobilizing nearly €800 billion. She proposed greater fiscal flexibility for member states and €150 billion in loans to support these efforts.

·    Prime Minister Justin Trudeau announced 25% tariffs on $155 billion of US imports, including beer, wine, and orange juice. He warned of further tariffs on C$125 billion of US products if President Trump's tariffs on Canadian goods persist for 21 days.

·    Euro Area's unemployment rate held steady at a record low of 6.2% for the third month, below the expected 6.3%. This suggests a tight labour market despite economic slowdowns in major economies. 

Key Points

·    Equities: Tariffs hit US, EU auto stocks collapse, defence stocks gain, futures rebound on tariff talks

·    Volatility: VIX jumped to 26.35, closes at 23.51, futures down 3.96%, market futures higher

·    Digital Assets: Bitcoin steady, MSTR +9.66%, miners weak, ETH gains

·    Currencies: Massive surge in euro as EU’s Von Der Leyen floats EUR 800 billion for defence , Germany’s Merz moves to lift debt rules and secure EUR 500 billion infrastructure fund

·    Fixed Income: Large rebound in global yields – European focus today after German policy moves late yesterday.

·    Commodities: NY copper detach from global prices. Crude stages small rebound