Canadian Dollar edged higher in early US session after much stronger-than-expected inflation data. However, Loonie quickly lost momentum, as investors remained cautious about Canada’s broader economic outlook, particularly in the face of rising trade tensions with the US.
While higher-than-expected inflation reduces the likelihood of another immediate rate cut, Canada’s economy is under serious pressure due to U.S. tariffs. If upcoming economic indicators, particularly March employment data, show signs of deterioration, it could strengthen the case for BoC to ease policy again. Traders appear hesitant to aggressively push the Loonie higher, as uncertainty remains over how BoC will balance inflation concerns with mounting growth risks.
For the day so far, Swiss Franc is the strongest performer, followed by Dollar and Loonie. Yen lags behind, followed by Aussie and Sterling. However, outside of Yen’s sharp decline, movements in most currency pairs have been relatively contained, as investors hold positions ahead of key central bank policy announcements in the upcoming days.
The focus will shift to BoJ during the upcoming Asian session, where it is widely expected to keep interest rates unchanged at 0.50%. While solid GDP growth and robust wage increases support the case for another hike as soon as May, the uncertain global trade outlook and potential volatility in US stock markets could prompt BoJ to delay further tightening until risks are clearer.
Technically, AUD/JPY’s immediate focus is on 95.50 support turned resistance and 55 D EMA (now at 95.60) in AUD/JPY. Sustained break there should confirm that fall from 102.39 has completed with three waves down to 91.80, as the second leg of the pattern from 90.10. In this case, stronger rally should be seen through 98.75 towards 102.39. However, rejection by the resistance zone will extend the decline from 103.39 to 90.10 low.
In Europe, at the time of writing, FTSE is up 0.46%. DAX is up 1.18%. CAC is up 0.65%. UK 10-year yield is up 0.034 at 4.683. Germany 10-year yield is up 0.014 at 2.839. Earlier in Asia, Nikkei rose 1.20%. Hong Kong HSI rose 2.46%. China Shanghai SSE rose 0.11%. Singapore Strait Times rose 0.92%. Japan 10-year JGB yield rose 0.003 to 1.506.
Canada’s CPI surges to 2.6%, growing chance for BoC pause at next meeting
Canada’s CPI jumped sharply from 1.9% yoy to 2.6% yoy in February, exceeding market expectations of 2.1%. This marks the first time in seven months that inflation has risen above the 2% mid-point of BoC’s target range.
A key driver of the surge was the expiration of a sales tax break in mid-February, which added to an already broad-based increase in prices. Without the tax impact, inflation would have hit 3.0%. On a monthly basis, CPI rose by 1.1% mom.
A closer look at the CPI basket shows widespread price increases across multiple categories. Food prices rose 1.3% yoy, while clothing and footwear climbed 1.4% yoy. Transportation costs surged 3.0% yoy, and shelter costs remained significantly elevated, rising 4.2% yoy.
Core inflation measures also pointed to underlying price pressures. CPI median rose from 2.7% yoy to 2.9% yoy, above expectation of 2.7% yoy. CPI Trimmed rose from 2.7% yoy to 2.9% yoy, above expectation of 2.8% yoy. CPI Common also rose from 2.2% yoy to 2.5% yoy, above expectation of 2.2% yoy.
German ZEW economic sentiment surges to 51.6 on fiscal optimism
Germany’s ZEW Economic Sentiment Index surged from 26.0 to 51.6 in March, exceeding expectations of 48.1. However, the Current Situation Index only saw a marginal improvement, rising from -88.5 to -87.6, well below the forecast of -80.5.
Similarly, in the Eurozone, economic sentiment rose from 24.2 to 39.8, though it missed expectations of 43.6. Current Situation Index barely moved, edging up to -45.2.
ZEW President Achim Wambach attributed the sharp improvement in economic expectations to positive signals regarding German fiscal policy, particularly the agreement on a multi-billion-euro financial package for the federal budget.
This stimulus plan has boosted optimism for key industrial sectors, including metal and steel manufacturing and mechanical engineering, which have been struggling with weak demand and global trade uncertainty.
Another supportive factor for economic optimism has been ECB’s ongoing monetary easing.
ECB’s Rehn flags growth risks from tariff uncertainty, stays cautious on rate Cuts
Finnish ECB Governing Council member Olli Rehn acknowledged that US. tariffs and increased uncertainty are “already having adverse effects” on the Eurozone’s economic outlook, with immediate and near-term growth prospects deteriorating.
However, he pointed out that one offsetting factor could be higher defense spending across Europe, which is expected to provide some support to GDP growth in the medium term.
Rehn took a cautious stance on further ECB rate cuts, refusing to commit to any specific policy actions given the uncertainty surrounding the economic outlook.
While inflation in the Eurozone is stabilizing around the 2% target, he noted that risks are “two-sided.” Despite his cautious tone, Rehn pointed to the ECB’s latest projections, which include several more rate cuts this year if the economy and inflation follow the baseline scenario.
SECO lowers Swiss growth outlook, underperformance to continue fro two more years
Switzerland’s State Secretariat for Economic Affairs has slightly lowered its growth projections for the economy, reflecting ongoing global trade tensions and economic uncertainty.
The latest forecast now sees GDP growth at 1.4% in 2025 and 1.6% in 2026, down from the previous estimates of 1.5% and 1.7%, respectively. This means the Swiss economy will likely continue expanding at a pace below its historical average of 1.8%, extending a period of subdued economic momentum for at least two more years.
SECO emphasized that while the base scenario assumes no full-blown global trade war, some negative effects from current trade frictions are still expected, adding pressure on both investment and economic activity.
According to SECO, a negative trade scenario—where international economic activity weakens further—would “significantly impact Swiss exports and domestic economic activity”. On the other hand, an upside scenario exists, particularly if Germany successfully implements its massive fiscal package.
However, for now, SECO believes “downside risks to the economy currently outweigh upside potential”. Also Swiss Franc’s could face upward pressure if downside risks materialize.
RBA’s Hunter cautious on further rate cuts, Treasurer warns of trade war’s indirect impacts
RBA Chief Economist and Assistant Governor Sarah Hunter reinforced the central bank’s cautious stance on further rate cuts. She emphasized in a speech today that while the February cut was deemed an appropriate time to “take some restrictiveness away”, the Board were “more cautious than the market about prospects for further easing”.
Hunter highlighted that US policy settings and their impact on the global economy as “one of the things we are focused on right now.
She added that policy decisions are always made in uncertain environments, where the baseline forecast is just one of many possible scenarios rather than a strict roadmap for future moves. The link between economic forecasts and rate decisions is “not mechanical”.
Separately, Australian Treasurer Jim Chalmers acknowledged that the direct impact of US tariffs on Australia is “concerning, but manageable”. But he warned that the larger risk lies in a broader global trade war. He described the current environment as a “new world of uncertainty”, where the spillover effects from rising trade tensions could have far-reaching consequences for Australia’s economy.
USD/CAD Mid-Day Outlook
Daily Pivots: (S1) 1.4246; (P) 1.4315; (R1) 1.4355; More…
Range trading continues in USD/CAD and intraday bias remains neutral. On the downside, break of 1.4238 support will argue that corrective pattern from 1.4791 has started the third leg already. Intraday bias will be back on the downside for 1.4150 support and below. On the upside, though, break of 1.4541 will resume the rebound from 1.4150, as the second leg of the pattern.
In the bigger picture, long term up trend is tentatively seen as resuming with prior breach of 1.4667/89 key resistance zone (2020/2015 highs). Next target is 100% projection of 1.2401 to 1.3976 from 1.3418 at 1.4993. This will remain the favored case as long as 1.3976 resistance turned support holds (2022 high), even in case of deep pullback.
