Canadian Dollar spiked lower after US President Donald Trump confirmed his plan to impose 25% tariffs on imports from Canada and Mexico, set to take effect this Saturday on February 1. Trump justified the decision by citing concerns over migration, drug trafficking, and economic imbalances. However, uncertainty remains regarding whether oil imports will be affected. While the move was not entirely unexpected, the confirmation added pressure to the Loonie as markets assessed the impact on trade, inflation and growth.
In contrast, Trump’s stance on China remains less definitive. While he also mentioned potential tariffs on China due to ongoing fentanyl concerns, he stopped short of detailing any immediate action. This leaves the possibility of further trade disruptions on the horizon, though no concrete measures have been announced yet.
Despite the tariff headlines, Loonie remains middle-of-the-pack in weekly performance. Aussie and Kiwi continue to struggle, along with Euro. Yen leads the market, additionally supported by stronger Tokyo inflation data, followed by the Dollar. British Pound has climbed higher, benefiting from Euro weakness, while Swiss Franc is trading mix.
Gold has surged to a new all-time high, reaching 2800 level as investors seek safety amid rising economic uncertainty. The strong rally suggests growing concerns over global stability, particularly with trade tensions escalating.
For now, near term outlook in Gold will stay bullish as long as 2730.34 support holds. Next target is 38.2% projection of 1810.26 to 2789.92 from 2584.24 at 2958.47, or even 3000 psychological level.
Tokyo inflation accelerates, keeping BoJ hikes alive
Japan’s inflationary pressures picked up in January, with Tokyo’s core CPI (excluding fresh food) rising to 2.5% yoy from 2.4%, marking its fastest pace in nearly a year. Core-core measure (excluding food and energy) also edged higher to 1.9% from 1.8%. Meanwhile, headline CPI surged to 3.4% from 3.0%, its highest level in nearly two years, largely driven by rising prices for vegetables and rice.
The data reinforces expectations that inflation in Japan could continue rising toward 3% in the coming months, as persistently weak yen drives up import costs. Some analysts see room for one or two more rate hikes by BoJ this year, particularly if inflation remains sticky and real wage growth improves. However, with Tokyo services inflation slowing to 0.6% yoy from 1.0% yoy, concerns remain about the sustainability of domestic price pressures.
On the production side, industrial output rose 0.3% mom in December, matching forecasts. The Ministry of Economy retained its cautious assessment, stating that production “fluctuates indecisively,” though manufacturers expect a 1.0% rise in January and a further 1.2% increase in February.
Retail sales, however, showed resilience, climbing 3.7% yoy, exceeding expectations of 2.9%. This suggests that consumer demand remains strong despite higher living costs.
BoJ’s Ueda reaffirms support for economy while keeping rate hikes on the table
BoJ Governor Kazuo Ueda reiterated the central bank’s is aiming for “gradual pickup” in prices, supported by a “solid increase in wages.” He emphasized that maintaining easy monetary conditions remains necessary to “support economic activity” and ensure that underlying inflation continues rising toward the 2% target.
However, he also made it clear that BoJ’s stance remains unchanged, noting that it will “continue raising interest rates” and adjust monetary support if the economy and prices “move in line with our forecasts.”
At the same parliamentary session, Prime Minister Shigeru reinforced the government’s priority of achieving sustainable inflation alongside wage growth. He highlighted that while stable price increases are important, “we must aim for wage growth higher than inflation while prices rise stably.” He also warned against the perception that falling prices are beneficial, arguing that such views prolonged Japan’s deflationary struggles in the past.
USD/CAD Daily Outlook
Daily Pivots: (S1) 1.4390; (P) 1.4493; (R1) 1.4593; More…
USD/CAD’s break of 1.4516 resistance indicates resumption of larger rally. Intraday bias is back on the upside for 1.4667/89 key resistance zone. Strong resistance might be seen there to limit upside on first attempt. But break of 1.4260 support is needed to confirm short term topping. Otherwise, outlook will stay bullish in case of retreat. Decisive break of 1.4689 will confirm long term up trend resumption.
In the bigger picture, up trend from 1.2005 (2021) is in progress for retesting 1.4667/89 key resistance zone (2020/2015 highs). Decisive break there will confirm long term up trend resumption. Next target is 100% projection of 1.2401 to 1.3976 from 1.3418 at 1.4993. Medium term outlook will remain bullish as long as 1.3976 resistance turned holds (2022 high), even in case of deep pullback.
