GLOBAL MACRO: Canada & Mexico More Vulnerable To Tariffs Than US
The US is going ahead with 25% tariffs on Canada and Mexico and 10% on China. As expected there has been a response with Canada announcing C$155bn in retaliatory measures, China to introduce “corresponding countermeasures” and a lawsuit with the WTO, and Mexico to announce its response today. But with Canada’s exports to the US in 2024 accounting for over 75% of the total and Mexico over 80% compared with 17% and 16% respectively for US exports, the power lies with the US.
- China is a lot more diversified than Canada and Mexico with only 13.3% of its 2024 goods exports going to the US down from 14.8% in 2023. They were worth 2.8% of GDP in 2023. 6.9% of US exports went to China in 2024.
- In 2024, over 28% of US merchandise imports came from Canada and Mexico and thus a 25% tariff is likely to result in higher prices certainly in the short- to- medium terms.
US imports by source % total
- Oil is a major Canadian export to the US, ranked 1 and 2. Midwestern refineries are geared to process heavy sour Canadian crude and over half of US oil imports come from Canada. Thus with the significant risk that a 25% tariff on oil imports would push US fuel prices up, imports of Canadian oil, natural gas and electricity will be taxed at 10%.
- In 2023, Canadian exports to the US accounted for over 20% of GDP, while Mexico was less exposed with them worth 6.8%.
- Canada will impose a 25% tariff on C$30bn of US merchandise from Tuesday including cosmetics, appliances, pulp & paper, tyres and plastics. Another C$125bn will face the tax in a few weeks.
Exports to the US 2023 %
Source: MNI - Market News/Refinitiv
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USDCAD TECHS: Bull Flag Highlights A Clear Uptrend
- RES 4: 1.4669 2.0% 10-dma envelope
- RES 3: 1.4539 3.382 proj of the Oct 17 - Nov 1 - 6 price swing
- RES 2: 1.4508 3.236 proj of the Oct 17 - Nov 1 - 6 price swing
- RES 1: 1.4467 High Dec 19
- PRICE: 1.4392 @ 15:50 GMT Jan 3
- SUP 1: 1.4336 Low Dec 20
- SUP 2: 1.4307/4232 20-day EMA / Low Dec 17
- SUP 3: 1.4136 50-day EMA
- SUP 4: 1.4011 Low Dec 5
USDCAD is unchanged and bulls remain in the driver’s seat. The latest pause appears to be a flag formation - a bullish continuation signal. Note too that moving average studies are in a bull-mode position, highlighting a dominant uptrend. Sights are on 1.4508 next, a Fibonacci projection level. Initial firm support to watch lies at 1.4307, the 20-day EMA. A pullback would be considered corrective.
AUDUSD TECHS: Southbound
- RES 4: 0.6471 High Dec 9
- RES 3: 0.6408 50-day EMA
- RES 2: 0.6341 High Dec 18
- RES 1: 0.6247/6282 High Dec 30 / 20-day EMA
- PRICE: 0.6204 @ 15:21 GMT Jan 3
- SUP 1: 0.6179 Low Dec 31
- SUP 3: 0.6158 1.236 proj of the Sep 30 - Nov 6 - 7 price swing
- SUP 3: 0.6100 Round number support
- SUP 4: 0.6045 1.500 proj of the Sep 30 - Nov 6 - 7 price swing
A bearish trend condition in AUDUSD remains intact and the pair continues to trade closer to latest lows. Recent weakness maintains the price sequence of lower lows and lower highs. Note that moving average studies are in a bear-mode position too, highlighting a dominant downtrend. Scope is seen for an extension towards 0.6158 next, a Fibonacci projection. Initial firm resistance to monitor is 0.6282, the 20-day EMA.
US TSYS: Near Late Friday Lows
- Treasury futures looked to finish near late session lows Friday, early support evaporating after the December manufacturing ISM survey beat expectations, but still pointed to soft if improving sectoral dynamics. The headline reading of 49.3 was an improvement from 48.4 prior and a 9-month high, besting the survey expectation of 48.4.
- Tsy curves bear steepened briefly before retreating mildly flatter in the second half. In turn, projected rate cuts through mid-2025 look steady to lower vs. this morning's levels (*) as follows: Jan'25 steady at -2.8bp, Mar'25 -13.2bp (-14.4bp), May'25 -17.8bp (-19.5bp), Jun'25 -26.5bp (-28.2bp).
- Focus on next week: economic data and Treasury supply has been moved forward to accommodate next Thursday's "day of mourning" to honor President Carter. The Federal holiday sees most markets closed, the exception so far is CME rates that will operate on a shortened session.
- Next Thursday's weekly jobless and continuing claims will be released on Wednesday according to the Dept of Labor site LINK
