USD held firm yesterday, following on from Donald Trump's comments that he wants universal tariffs that are much bigger than 2.5%.
Australian CPI came in weaker than expected, keeping market pricing for rate cuts this year to be 85bp. As a result, AUD is weaker.
*Daily move - against G10 rates at 7:30am, 29.01.25
** Indicative rates - interbank rates at 7:30am, 29.01.25
All eyes on the Federal Reserve (Fed) tonight. It's widely expected the Fed will keep rates at 4.50% and remain cautious in future rate moves. Fed Chair Powell will likely be questioned on Trump's recent comments demanding that rates are cut. It is expected Powell to remain resolute in his stance that the Fed will be in control of rates and not the President. Hawkish comments could put the Fed rate cut expectations to only 25bp worth of cuts this year versus the 50bp currently priced in.
The Bank of Canada (Boc) interest rate decision is out in the afternoon, where we are fully expecting a 25bp rate cut. So focus will fall on Governor Macklem's forward guidance and whether there are any comments with regards to US tariffs on Canada. His guidance is expected to be dovish, which could well result in further rate cuts getting priced in by the end of the year and likely causing a weaker CAD. Markets are currently pricing in 66bp worth of cuts this year.
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