The U.S. White House announced on July 20th (local time) that it will impose an additional 50% ad valorem tariff on certain Canadian products. This move is in response to what it calls "discriminatory measures by Canada against U.S. trade in automobiles and auto parts." Ontario Premier Doug Ford promptly urged Canada to retaliate. Posting on social media platform X, Ford stated: "If these tariffs are ultimately implemented, Canada should respond with tariffs for tariffs and dollars for dollars." Ford has consistently advocated for stronger retaliatory measures against other U.S. tariff actions. As former President Trump's policy of imposing large-scale tariffs continues and his public dissatisfaction with the trade agreement between the U.S., Canada, and Mexico grows, tensions between the long-standing allies and major trading partners are escalating, with frictions intensifying.
Additionally, data released by Statistics Canada on Monday showed that Canada's inflation rate fell more than expected in June, driven by a decline in gasoline prices. A key core inflation measure dropped to 1.85%, its lowest level since September 2020 and the first time in nearly six years it has fallen below 2%. The Consumer Price Index (CPI) rose 2.8% year-on-year in June, down from 3.2% in May (a more than two-year high) and below economists' forecast of 2.9%. This weaker-than-expected inflation data further suggests that inflationary pressures stemming from the conflict in the Middle East have not yet spread from the energy sector to other areas. The Bank of Canada had previously warned it might need to raise interest rates if rising energy costs spilled over into other goods and services prices, but the cooling core inflation indicates that economic slack is helping to offset price pressures from the conflict.
Key data to watch today includes the UK May Unemployment Rate, the UK May Average Weekly Earnings (including bonuses) three-month annual rate, the Eurozone July ZEW Economic Sentiment Index, and the U.S. ADP Weekly Employment Change for the week ending July 4th.
Gold / USD
Gold traded in a narrow range yesterday, closing slightly lower on the daily chart, with the current spot price hovering around $2,060. The primary factor weighing on gold was the rise in the U.S. Dollar Index, supported by inflation concerns stemming from Middle East tensions. Furthermore, recent robust U.S. economic data also exerted some downward pressure on the precious metal. However, expectations for a less aggressive Federal Reserve rate hike path limited gold's downside. Focus today is on resistance near $2,100 and support around $2,000.
USD / JPY
The USD/JPY pair moved higher in choppy trading yesterday, ending the day with modest gains. The current spot price is near 162.50. The main driver was the continued rebound in the U.S. Dollar Index, underpinned by persistent Middle East geopolitical concerns. Nonetheless, tempered expectations for Fed rate hikes and lingering fears of renewed Japanese intervention in the currency market capped the pair's upside. Today, watch for resistance around 163.50 and support near 161.50.
USD / CAD
The USD/CAD pair climbed higher yesterday, reaching a fresh three-session peak. The current spot price is around 1.4080. Support came from a combination of short-covering, technically-driven buying interest near the 1.4000 psychological level, and the release of weaker-than-expected Canadian CPI data during the session. Additionally, the announcement of new U.S. tariffs on certain Canadian goods provided further support for the pair. Today, attention shifts to resistance near 1.4150 and support around the 1.4000 level.