CANADA: Latest Tariff State Of Play
- Trump imposed 25% tariffs on all Canadian goods except for a partial carve-out with 10% on energy (including oil & electricity), along with 25% tariffs on Mexico and 10% on China plus threats of upcoming tariffs on the EU.
- The measures take effect at 0001ET on Tuesday leaving only a small window for last-minute negotiations. Trump and Trudeau are set to speak Monday morning (currently nothing more specific on timing) but Trump has said “I don’t expect anything very dramatic […] We put tariffs on. They owe us a lot of money, and I’m sure they’re going to pay”. Such a quick roll back could be humiliating.
- The tariffs will also aim to close the “de minimis” loophole that saw exemption for packages worth less than $800.
- The Canadian response has been swift. It will retaliate with 25% tariffs on C$155bn of US goods, C$30bn taking effective also on Tue before the remaining C$125bn in three weeks to allow businesses time to prepare.
- The first wave of Canadian retaliation focused on previously touted areas such as alcohol, coffee, clothing and shoes, furniture, household appliances plus products from Republican-leaning states. A second wave is more industrial focused and includes cars and trucks, agricultural products, steel and aluminum and aerospace products.
- USDCAD hit 1.4793 in Asia hours to punch through 2016 and Covid highs for levels last seen in 2003. It’s since pulled back to 1.4670-1.4680. We earlier noted some $3bn of option expiry set to roll off between C$1.4740-1.4800 on Friday after dual US and Canadian jobs reports.
- CORRA futures implied yields are ~10bp lower from Friday’s close in thin early trading. Downside growth impacts dominate but the immediate Canadian retaliation keeps an inflation angle at play.
- BoC analysis published Wednesday showed US 25% tariffs on all imported goods and all trading partners with full retaliation would see Canadian GDP growth 2.4pps lower in year 1 before 1.5pps lower in year 2. CPI inflation would be just 0.1pp higher in year before a more significant 0.5pp in year 2 and 1.0pp in year 3. Note here.
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JGB TECHS: (H5) Returns Lower
- RES 3: 149.55 - High Mar 22 (cont)
- RES 2: 147.74 - High Jan 15 and bull trigger (cont)
- RES 1: 144.48/146.53 - High Nov 11 / High Aug 6
- PRICE: 142.12 @ 15:01 GMT Jan 03
- SUP 1: 141.65 - Low Dec 30
- SUP 2: 141.56 - 1.764 proj of the Aug 6 - Sep 3 - 9 price swing
- SUP 3: 141.05 - 2.000 proj of the Aug 6 - Sep 3 - 9 price swing
Markets slipped on the hawkish Fed and are yet to fully recover, touching 141.65 on the way lower. Medium-term trend signals on the continuation chart continue to point south. A resumption of the trend would pave the way for a move towards 141.56, a Fibonacci projection point on the continuation chart. A stronger recovery would open 144.48, the Nov 11 high. Further out, key resistance is at 146.53, the Aug 6 high (cont).
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.
