Crude Struggles, CAD Outlook Weakens

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

US Dollar        1.3560-1.3790

Euro                 1.5520-1.5750

Sterling            1.8450-1.8680

WTI Oil (opening level) $65.92

The CAD/USD is opening at 1.3684 ( 0.7308 )

Over the last month CAD has strengthened, helped by stronger than expected inflation data (which was strongly influenced by lower gas prices after the carbon tax was removed) along with the Bank of Canada holding interest rates on June 4.

So what to expect for the upcoming months?

While USD/CAD may still face periods of downward pressure on the back of lacklustre USD demand, CAD does not look attractive in other G10 crosses. The new US metal tariff hikes disproportionally hit Canadian exporters, and there are no indications of imminent high-level trade negotiations with the US.

Growth risks remain heavily tilted to the downside in Canada, and the Bank of Canada will likely need to react, possibly by cutting rates as soon as July. This will likely weaken CAD.

I have seen this 1.37 to 1.39 range a lot over the years. It won't surprise me if we stay in this range for the next few months.

Headlines 

·    US and China reached a preliminary agreement on implementing the Geneva consensus on trade relations, with US negotiators confident that the rare earth minerals and magnets issues will be resolved. Delegations will present the proposal to their leaders for approval and subsequent implementation. The London talks aimed to solidify China's pledge to ease rare earth shipments, made during last month's Geneva discussions.

·    The World Bank cut its 2025 global growth forecast to 2.3%, the weakest in 17 years outside of recessions, and the 2026 forecast was lowered to 2.4%. Growth is hindered by trade barriers and uncertain policies. Halving tariffs by May 2025 could boost growth by 0.2 percentage points in 2025 and 2026.

·    US and Mexico are negotiating to reduce or eliminate Trump's 50% steel tariffs on imports. A likely outcome is a quota allowing a certain volume from Mexico to enter duty-free or at a reduced rate, with excess imports facing the full tariff.

·    According to the US Energy Information Administration, US oil production is set to decline next year for the first time since the pandemic, edging lower to 13.3 million barrels per day from 13.5 million barrels this year, largely as lower prices discourage new well completions.

Key Points

·    Equities: Trade optimism; tech leads; Europe banks hit; UK housebuilders rally

·    Volatility: VIX slips below 17; market nerves calm; Fed in focus

·    Digital assets: Bitcoin steady; ETH ETF inflows; IBIT, ETHA outperform

·    Fixed Income: Yield sideways ahead of US CPI, 10-year US Treasury auction today

·    Currencies: USD sideways ahead of US CPI. Sterling weaker after weak May jobs data

·    Commodities: Crude struggles near resistance; Gold up ahead of inflation print