Trump’s Fight with Fed Sends USD Reeling, Gold Soaring

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

US Dollar        1.3720-1.3950

Euro                 1.5800-1.6030

Sterling            1.8370-1.8610

WTI Oil (opening level) $63.52

The CAD/USD is opening at 1.3838 ( 0.7226 )

USD/CAD has fallen significantly in recent weeks. However, this was due to pronounced USD weakness rather than CAD strength. If the US dollar recovers, we are likely to see higher levels again. In addition, the Canadian real economy continues to struggle and the threat of US tariffs has not yet been averted. CAD risks are only likely to slowly subside in the second half of the year,

Headlines

·    Further pressure from President Trump on Fed Chair Powell to lower interest rates raised fears about Fed independence, especially as NEC Director Hassett indicated Trump is exploring ways to dismiss Powell, sparking a risk-off session. “But there can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW,” Trump said, referring to Powell. In other words, as the WSJ puts it: “Trump put the country on notice that he will make the Fed a scapegoat for any economic fallout from his trade war and also delegitimize the institution if it doesn’t cut rates.”

·    The rhetoric from Trump saw Gold ripping to new all-time highs against all major currencies, the US dollar sharply lower, long US treasury yields higher and equities in a fresh sell-off, although Japan’s equity market has taken the JPY strengthening quite well with a sideways session overnight.

·    Fed's Goolsbee (2025 voter) highlighted rising short-term inflation expectations, while long-term ones remain stable. He stressed focusing on this year's economic outlook, noting tariffs are one factor with potentially modest macroeconomic impact.

Key Points

·    Equities: US equities under renewed pressure yesterday as Trump pressures Fed to cut rates

·    Currencies: The USD smashed to new lows on Trump pressure on Fed to cut rates

·    Fixed Income: Trump pressure on Fed fails to spark decline in short US yields, though long US treasuries under pressure

·    Commodities: Gold powers higher as Trump challenges Fed independence

·    Macro events: Fed speakers, US 2-year auction & EZ Consumer Confidence