The Morning Update

The USD slips, oil prices stay steady, and equity markets and US yields are mixed as investors seek direction. The USD slips for a second session as markets steady after Monday's volatile start following the US/China tariff truce. The USD remains on the back foot against its G10 peers, with safe-haven Yen & Swiss the primary beneficiaries of the current market uncertainty. A gauge for global equities showed markets are on track for an eighth day of gains, their best performance since February. "It's a bit directionless now," said Ling, MD at Union Bancaire Privee. "Markets needed new catalysts after the US-China tariff walk-back over the weekend and were looking to China tech earnings this week to sustain the rally, but Alibaba's result last night wasn't able to provide the lift." Elsewhere, oil prices slip amid talks of US/Iran nuclear deal, Bitcoin firms to $103.6k, while gold and silver ease in early trading. Focus today will be on the US Michigan Consumer Sentiment Index, US Housing Starts, US Building Permits and speeches by ECB Lane and Villeroy to help provide direction to currency markets.

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In other news, Trump says the US and UAE agree on a path for the Emirates to buy top American AI chips. Japan's economy shrinks more than expected as a US tariff hit looms. The US considers adding Chinese chipmakers to its export blacklist. Trump says no deal on Ukraine until he meets Putin. EU takes action against TikTok over online content rules. EU leaders urge Starmer to improve mobility deal in last-ditch 'reset' talks. Hudson's Bay to sell name, stripes, brands to Canadian Tire for $30 million. Ontario deficit grows to $10b as province tables $232.5B budget aimed at protecting the economy from tariffs. India weighs plan to slash Pakistan's water supply with new Indus river project.

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In currency markets. The USD remains under pressure alongside US yields following weakening US economic data this week, which increases expectations for Federal Reserve interest rate cuts as early as July. Markets are pricing in a 40% chance for a 25 bps rate cut by July, and expectations are growing for a second 25 bps rate cut by December. CNY and Asian currencies, on average, hold steady against the USD. Trading currencies are mixed, with ZAR easing 0.2%, CHF down 0.1%, JPY, MXN, DKK & CZK up 0.1%, NOK firms 0.2%, AUD gaining 0.35%, and NZD strengthening 0.6% against the USD.

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In commodity markets. Oil & Soybean prices are flat. Natural Gas, Wheat and Silver prices weakened by 0.75%, Gold eased by 0.5%, and Copper prices tumbled by 1.4%.

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CAD steadies below 1.4000 against the USD, but continues on the back foot against its other G10 peers as ongoing tariff concerns, diverging interest rates and weakening commodity prices continue to keep the loonie under pressure. Domestically, Canadian home sales edged lower in April as home sales fell 0.1% in April from March and were down 9.8% annually. Ontario expects the budget deficit to more than double in the face of US tariffs. On Thursday, the government forecasted its widest budget deficit since the height of the pandemic, as it increased spending to support the economy in a trade war with the US. The province said the deficit will increase to C$14.6 billion, or 1.2% of GDP, its widest since 2020-21. Intraday, the primary focus will be on the US Michigan Consumer Sentiment Index to help provide direction to the loonie.

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EURCAD continues to rise amid weakening commodity prices and the prospect of a BoC interest rate cut in June.

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EUR continues to straddle 1.1200 ahead of US data and ECB policymakers' speeches. The euro continues to trade within a tight trading range as investors search for fresh direction after the uptick from the US/China tariff pause fades. Investors will be focused on the UoM Consumer Sentiment Index, which has declined for the last six months, but the trend is forecasted to change in May, ticking up to 53.4 from 52.2 in April. If the report beats expectations, we would see support return to the USD and pressure the euro.

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GBPEUR continues to stall as investors seek fresh impetus.

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GBP retests 1.3300 as markets stall ahead of the UoM Consumer Sentiment report. The pound eases from early gains as the USD recoups early losses despite increasing expectations of a Fed rate cut in Q3/25. e cut in Q3/25. Investors are taking a slightly more cautious stance on the pound's direction ahead of next week's critical UK inflation report, awaiting fresh clues about the Bank of England's monetary policy. This week BoE Chief Economist Pill warned that inflation could continue to prove stronger-than-expected, "I remain concerned that we have seen a sort of structural change in price and wage-setting behaviour, maybe driven by the type of things that were involved in models of the inflation process from the '70s and '80s.".