- EUR/CAD gives up a majority of intraday gains and falls back below 1.0500.
- Trump mentioned that he planning to announce 25% tariffs on Canada and Mexico.
- The ECB is expected to cut its Deposit Facility rate gradually in each of its next four policy meetings.
The EUR/CAD pair surrenders a majority of its intraday gains after failing to extend its four-day run-up above the key resistance of 1.5050 in Tuesday’s European session. However, the outlook of the asset remains firm as the Canadian economy is expected to face hefty tariff hikes from the United States (US).
US President Donald Trump indicated in his inauguration ceremony on Monday that he is planning to slap 25% tariff hikes on Canada and Mexico on February 1. This scenario will result in a significant weakness in Canadian exports. Also, Trump’s plans to raise strategic oil reserves dampened Canada’s export sector, being a leading oil exporter to the US.
Meanwhile, investors await the Canadian Consumer Price Index (CPI) data for December, which will be published at 13:30 GMT. The CPI report is expected to show that inflation rose steadily by 1.9% on a year-on-year basis. On month, price pressures are estimated to have deflated by 0.4% after remaining flat in November.
Soft US inflation data and uncertainty over Trump’s tariff plan would prompt expectations that the Bank of Canada (BoC) will continue reducing interest rates at a larger-than-usual pace of 50 basis points (bps). While, the Reuters poll in January 10-16 period showed that the BoC is almost certain to cut interest rates by 25 basis points (bps) to 3%.
On the other side of the Atlantic, the Euro (EUR) is also expected to face pressure from Trump’s tariff agenda as he mentioned on Monday that he would remedy the trade imbalance with Europe either by “raising tariffs or forcing them to buy more US oil and gas”. Trump’s tariff hikes on the Eurozone would weigh on an already weak economic outlook, due to which traders expect the European Central Bank (ECB) to cut interest rates gradually in the coming four policy meetings.
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