CAD slips to minor new low on USD on tariff news - Scotiabank

It's back to square one for the Canadian Dollar (CAD) after gaining to the mid/upper 1.42s, if only briefly yesterday. Gold is up but energy prices have dropped in response to the renewed tariff threat. Yesterday's Bank of Canada Business Outlook Survey reflected a sharp uptick in expected sales and generally firmer business sentiment, Scotiabank's Chief FX Strategist Shaun Osborne notes.

CAD underperforms on the day

"Given the timing of the survey, businesses were likely cheered by lower interest rates at home but still processing what the outcome of the US election might mean for Canadian exporters. Inflation expectations widened--a greater proportion of respondents expected inflation to return to low levels (1-2%) but the number expecting somewhat higher prices also increased. Meanwhile, there is an unusually wide range of expectations for this morning's CPI data."

"The consensus is for a 0.4% decline on the month but the range of estimates is 0.0% to -1.5%; Scotia is at -1.0%. The issue here may be how to account for the limited tax holiday that the government introduced last month, balanced against signs (from the jobs data) that the economy picked up a little more momentum late last year. Still, assuming data shows Y/Y inflation maintaining recent progress, markets are likely to add to conviction that the BoC will cut on January 29th (around 19bps priced in)."

"The high volatility seen in the past 24 hours may continue in the near-term. USD losses yesterday reversed, and more, overnight to take spot to a high just above 1.45 briefly. These sorts of price swings can sometimes characterize a market that is about to reverse direction but conviction around a reversal in USD strength should remain in check for now. Broadly, resistance is 1.47. Support is 1.4250."