Global markets found some stability after the US agreed to a 30-day delay on tariffs against Mexico and Canada following agreements on fentanyl trafficking and border security measures. However, trade tensions remain elevated as Washington proceeded with the additional 10% tariff on all Chinese imports. In response, China retaliated by imposing a 15% tariff on US coal and LNG, along with a 10% levy on crude oil, farm equipment, and select automobiles, set to take effect on February 10.
Further escalation could be on the horizon, as US President Donald Trump signaled that additional tariff hikes on China remain a possibility unless Beijing takes further steps to curb fentanyl exports. Meanwhile, trade friction with the EU is also building. Trump hinted over the weekend that European imports could be his next target, prompting EU leaders at a summit in Brussels to prepare countermeasures while expressing willingness for negotiations. Developments on both fronts will be closely monitored in the days ahead.
In the currency markets, Canadian Dollar is leading gains for the week so far, rebounding strongly following the tariff delay. Japanese Yen follows as the second-strongest performer, benefiting from risk aversion, while British Pound holds up well. On the weaker side, New Zealand Dollar is underperforming, followed by Euro and Australian Dollar. Dollar has retraced most of its earlier gains and is now trading in the middle of the performance rankings alongside Swiss Franc.
Technically, Gold hit another record high on risk aversion yesterday after initial volatility. For now, outlook 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 3074.07, which is close to 3000 psychological. This level will be crucial in determining the underlying momentum of Gold.
In Asia, at the time of writing, Nikkei is up 0.82%. Hong Kong HSI is up 1.76%. China is still on holiday. Singapore Strait Times is down -0.13%. Japan 10-year JGB yield is up 0.0228 at 1.272. Overnight, DOW fell -0.28%. S&P 500 fell -0.76%. NASDAQ fell -1.20%. 10-year yield fell -0.026 to 4.543.
CAD rebounds as US pauses tariffs for 30 days
Canadian Dollar rebounded sharply after US President Donald Trump announced a 30-day pause on planned tariffs against Canadian imports, just hours after implementing a similar delay for Mexico.
The decision came after negotiations between Trump and Canadian Prime Minister Justin Trudeau, who confirmed that Canada would take aggressive new measures to combat fentanyl trafficking, including deploying nearly 10,000 personnel to reinforce border security. Canada also committed to appointing a “Fentanyl Czar”, classifying cartels as terrorist organizations, and launching a Canada-US “Joint Strike Force” targeting organized crime and money laundering.
Markets welcomed the de-escalation, as the tariff pause removes immediate downside risks for the Canadian economy. Trump emphasized that the suspension is conditional on further progress in security measures and that an “Economic deal with Canada” may still need to be structured.
Technically, a short term top is likely formed at 1.4791 in USD/CAD after this week’s strong volatility. More sideway trading should now be seen in the near term. However, outlook will continue to stay bullish as long as 1.4260 cluster support holds (38.2% retracement of 1.3418 to 1.4791 at 1.4267), which is also close to 55 D EMA (now at 1.4267). USD/CAD’s up trend is still in favor to resume at a later stage when the consolidation completes.
Fed officials stress patience on rate cuts amid tariff uncertainty
A trio of Fed officials cautioned that new broad-based tariffs could add upward pressure to consumer and producer prices, suggesting a slower pace of rate cuts than previously anticipated.
Boston Fed President Susan Collins highlighted yesterday that tariffs on both final and intermediate goods risk inflating costs throughout supply chains, requiring “patient” policy decisions.
“It’s really appropriate for policy to be patient, careful, and there’s no urgency for making additional adjustments, especially given all of the uncertainty, even though, of course, we’re still somewhat restrictive,” Collins said.
Chicago Fed President Austan Goolsbee also stressed “a ton of uncertainty,” warning that a premature return to lower rates could reignite inflation.
“We’ve got to be a little more careful and more prudent of how fast rates could come down because there are risks that inflation is about to start kicking back up again,” Goolsbee said.
Meanwhile, Atlanta Fed President Raphael Bostic noted that any tariff-related surge in prices or inflation expectations might warrant close monitoring before further easing steps are taken.
BoJ’s Ueda prioritizes underlying inflation trends, not short-term volatility
BoJ Governor Kazuo Ueda reiterated the central bank’s commitment to achieving its 2% inflation target on a sustained basis, emphasizing that the focus remains on underlying inflation rather than temporary price fluctuations.
Speaking before parliament, Ueda highlighted that BoJ filters out one-off factors such as fuel and volatile fresh food prices when assessing inflation trends.
However, he acknowledged “that process at times could be difficult”, reinforcing the need for careful analysis before making policy adjustments.
AUD/USD Daily Report
Daily Pivots: (S1) 0.6130; (P) 0.6184; (R1) 0.6279; More...
Intraday bias in AUD/USD is turned neutral as it recovered notably after dipping to 0.6087. Some consolidations would be seen first. But outlook will stay bearish as long as 0.6329 resistance holds. Break of 0.6087 will resume larger decline from 0.6941. Next target is 61.8% projection of 0.6687 to 0.6130 from 0.6329 at 0.5985.
In the bigger picture, fall from 0.6941 (2024 high) is seen as part of the down trend from 0.8006 (2021 high). Next medium term target is 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.6511) holds.
