The Morning Update

The USD eases, oil prices strengthen, and equity markets and the US ease up as risk sentiment improves. The USD eases off weekly highs but remains supported by optimism of a positive outcome for US/China trade talks over the weekend. Meanwhile, the euro, sterling, kiwi, cad, and jpy all hit multi-week lows as investors return to the greenback. US futures are flat following Thursday's rally on the U.S.-UK trade announcement. At the same time, European equities rose, with Germany's benchmark hitting a record high as tariff tensions eased and an ECB policymaker suggested that another interest rate cut may occur next month. "We've had positive noises on the tariff front with a trade deal with the UK and noise that the US and China are talking, which was positive for risk assets," said Daniel Loughney, head of fixed income at Mediolanum Investments. "To keep the rally going, we need to see some actual movement on Chia regarding tariff negotiations." Elsewhere, oil prices strengthened on US/Sino tariff optimism, Bitcoin rallied through $102k, and gold and silver prices gained in early trading. Today's focus is the CAD net change in employment and the unemployment rate. US Feds Kugler, Williams, Goolsbee, and Waller's speeches will help drive intraday direction to currency markets today.

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In the news. German stocks hit a record high as trade optimism buoys markets. Trump proposes raising income taxes on wealthy Americans. China reports bumper April exports ahead of crucial trade talks with the US. The US and UK seal the first deal of President Trump's trade war. EU threatens tariffs on US cars if talks with Washington fail. Pakistan drone attack 'neutralised', says India, as skirmishes escalate. India offers to slash tariff gap by two-thirds in dash to seal trade pact with Trump. Citigroup must face a $1 billion lawsuit claiming it aided Mexican oil company fraud. Trump team seeks tariff cuts, rare earth relief in China talks. Bank of Canada says trade war 'poses greatest threat to Canadian economy.'

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In currency markets. The USD retraced some early gains as investors stepped to the sidelines ahead of the weekend trade talks between China and the US in Geneva. CNY slips 0.1%, while Asian currencies, on average, gain by 0.1% against the USD. Trading currencies are mixed, with NZD weakening 0.25%, CHF flat, DKK, CZK, AUD & MXN up by 0.1%, and AUD & JPY strengthened by 0.4% against the USD.

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In commodity markets. Oil & Natural Gas prices rallied 1.6%. Gold and Wheat prices strengthened by 0.6%. Silver prices firmed by 0.4%. Copper prices eased by 0.15%, and Soybean prices are flat.

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CAD continues under pressure, retesting multi-week lows amid a strengthening USD following the UK/US trade deal and on optimism for the weekend US/China trade talks. Investors may become more cautious on the loonie after the Carney/Trump meeting on Tuesday didn't provide any short-term signs for a solution to the ongoing tariffs. Bank of Canada Governor Macklem said in the near term, the unpredictability of US trade policy could cause further market volatility and strains on liquidity. In an extreme case, market volatility could turn into market dysfunction. Today, investors will be focused on the CAD jobs data, with the unemployment rate expected to rise to 6.8%, up from 6.7% in March.

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EURCAD continues to rise, strengthening by 6.25% year-over-year due to expectations of a more dovish BoC and Canada's greater vulnerability to US tariffs.

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EUR finds support at 1.1200 as the USD eases ahead of China/US trade talks. The euro bounces off four-week lows as investors turn cautious ahead of Saturday's US/China trade talks. We expect the euro to be capped following comments from ECB policymaker Olli Reh, who said that the eurozone growth outlook is weakening, while disinflation remains. Meanwhile, Governing Council member Gediminas Simkus noted that there was downward pressure on inflation and commented that a rate cut in June is needed. Intraday, due to the lack of US economic data releases, markets will be focused on a flurry of Fed speakers to help guide markets today.

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GBPEUR edges higher, continuing to find support from yesterday's US/UK trade agreement.

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-GBP extends gains, breaking through 1.3250 amid US selling and support from the UK/US trade deal. Investors are sidelined as caution returns to markets ahead of Saturday's US / China trade talks. Domestically, the BoE maintains its cautious tone on future rate cuts, which is expected to cap the pound's ability to strengthen against the USD. The Bank of England announced a 25 bps rate cut yesterday, but unexpectedly, two policymakers voted to hold the rate unchanged. In its policy statement, the BoE stated that a gradual and careful approach to further withdrawal of monetary policy restraint remains. We expect the pound to hold within current ranges without high-tier US economic releases today.