The global financial markets are poised for a pivotal week as investors closely monitor several economic indicators and geopolitical developments. The United States' decision to postpone tariffs on Canadian imports for thirty days has provided temporary relief to Loonie traders, as the USD continues to dominate the foreign exchange market. Meanwhile, the EUR faces mounting uncertainty due to Germany's upcoming election, and oil prices are influencing the Loonie's trajectory given Canada's status as a major oil producer. As the Federal Reserve's monetary policy remains in focus, market participants are also eyeing potential outcomes from ongoing US-EU trade negotiations and China's influence on the Aussie dollar.
The US Dollar is expected to maintain its stronghold in the foreign exchange market, with particular emphasis on Wednesday's developments. Analysts suggest that an acceleration in US CPI rates and a hawkish tone from Fed Chairman Jerome Powell could bolster the USD further. However, geopolitical tensions and unexpected moves from President Trump could create safe haven inflows for the currency.
“We expect the USD to be supported in the coming week should the US CPI rates accelerate and Fed Chairman maintain a hawkish tone. Also we cannot exclude the possibility of Trump causing mayhem in the markets, which could create some safe haven inflows for the USD.” – Analyst
Oil prices have reached levels not seen since late last year, presenting a bearish outlook for the Canadian dollar if they continue to decline. The market anticipates the Bank of Canada (BoC) to maintain a dovish stance, potentially leading to a retreat for the Loonie.
“We expect the Loonie’s direction over the coming week to be decided primarily by fundamentals and in particular the market’s expectations for BoC’s stance and the possibility of the US applying tariffs on imports from Canada. Overall we tend to see some bearish predisposition for the CAD dominating.” – Analyst
In Europe, diplomatic efforts are underway to prevent a potential US-EU trade war, which could offer asymmetric support to the EUR. Nevertheless, concerns loom large as Germany's election draws near, exacerbating uncertainty around the eurozone's economic future.
“In the coming week, we may see the release of Euro Zones’ revised GDP rates gaining some interest other than that, we expect fundamentals to lead the common currency. Both the monetary policy outlook and the fundamental circumstances surrounding the common currency tend to weaken it at the current stage” – Analyst
Meanwhile, in Asia-Pacific, Australian traders face a light calendar with possible interest in NAB's business indicators and consumer confidence. The market expects fundamentals to guide the Aussie dollar, with significant attention on any developments from China and its relationship with the US.
“We expect fundamentals to lead the Aussie in the coming week, especially any news from China and its relationships with the US. On a monetary level, should market expectations for RBA to cut rates on the 18th of February intensify, we may see the Aussie retreating” – Analyst
The British pound remains steady around 1.2450 against the USD after closing negatively on Thursday. The Bank of England's rate cut decision continues to weigh heavily on the pound's fundamental outlook.
“We expect BoE’s decision to continue weighing on the pound on a fundamental level, as the monetary policy outlook expectations may diverge further if compared with the Fed’s. Some support for the pound could be achieved should the UK GDP rates for Q4 accelerate easing market worries” – Analyst