Canadian Dollar Forecast Profile Lowered at Royal Bank of Canada

An escalating U.S.-China trade war is on the radar for FX traders as the Biden administration today raises tariffs on Chinese electric vehicles, semiconductors, solar and other key sectors.

Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, says this amounts to positive news for the USD.

"US trade policy is tightening very significantly. It was known in advance that the US government was going to impose higher tariffs on electric car imports from China. However, it is doing so in a big way: the tariffs are being quadrupled," says Leuchtmann.

The Biden administration is set to increase tariffs on Chinese EV imports from 25% to 100% as part of efforts to protect American industry ahead of the US election.

The tariffs are expected to be announced today and form part of Biden's multi-billion dollar efforts to reindustrialise the rust-belt, reduce carbon emissions, and decrease dependence on Chinese supply chains.

The Dollar is the best-performing major currency of 2024, aided by expectations that the Federal Reserve will be amongst the last developed central banks to cut interest rates due to ongoing U.S. economic outperformance.

Cheap imports drive down domestic prices and should help in the battle against inflation, but this is something the U.S. looks keen to reject. "The Biden administration is keen to introduce fresh tariffs that could boost cost-push inflation further at the margin," says Valentin Marinov, Head of G10 FX Strategy at Crédit Agricole.

This suggests a U.S.-China trade war is another supportive development for 'king dollar' as it keeps U.S. price pressures elevated for longer, which in turn keeps the Fed on hold for longer and maintains the USD's yield advantage.

"When U.S. governments of all stripes continue to stifle the U.S. economy in at least every election campaign, thereby creating inflationary pressures and forcing the Fed to counter with restrictive monetary policy, it is positive for the U.S. dollar," says Leuchtmann.

"Why Americans think it's so great that the government does not allow them to buy cheap Chinese electric cars remains a mystery to me," he adds.

Fed vice-chair Jefferson came with an important message to his colleagues. The current diversity of viewpoints among policymakers lends to stimulating debates and ultimately better policy. But… there's a but… in such a situation, more communication could increase rather than reduce uncertainty about Fed policy. "The potential for misinterpretation is especially acute when many policymakers speak at the same time and disagree with each other".

Also the Summary of Economic Projections (including dot plot) serves as an additional source of volatility in uncertain, and rapidly changing, market conditions (rate outlook). Fed officials have been discussing alternative communication strategies after the previous meeting. An official strategic review including communication policy will start later this year.

Earlier this month, the Bank of England received the results of a similar evaluation conducted by former Fed chair Bernanke. Jefferson confirmed the concerning lack of inflation progress in the first quarter, suggesting to keep the policy rate in restrictive territory awaiting that additional evidence.

Unlike the FOMC statement, Jefferson didn't specifically mention a policy rate cut. Fed Chair Powell speaks tonight at a special event organized by Netherlands' foreign bankers' association but its unclear if he'll touch on monetary policy.

US April producer prices have the potential to move markets today. Another upward surprise would up the ante in the run-up to tomorrow's CPI figures. Consensus expects 0.3% M/M and 0.2% M/M increases for headline and core PPI prints to day. The bar is higher tomorrow at 0.4% and 0.3% respectively.

We have the feeling that especially tomorrow, even meeting this bar isn't the hoped-for evidence that the disinflation process will continue. Therefore, and following the post-FOMC correction, we see asymmetric risks. US yields can then move again somewhat higher withing new trading ranges (4.75%-5.05% for 2-yr yield; 4.4%-4.75% for 10-yr). Such outcome should help the dollar holding above 105 support for the trade weighted greenback and below EUR/USD 1.0872 resistance.

UK labour market data were mixed this morning. April payrolls fell by 85k (vs +20k expected) but the March figure was upwardly revised from 67k job losses to only 5k. The unemployment rate ticked up from 4.2% to 4.3% in the three months to March. Wages rose slightly more than expected over that period (5.7% 3M/YoY). Sterling trades volatile not knowing to choose the weaker employment or the stickier wage inflation side.

The NY Fed's April survey of consumer expectations showed one-year ahead inflation expectations increasing to 3.3% from 3% in March. They also increased to 2.8% from 2.6% at a five year ahead horizon, but eased slightly to 2.8% from 2.9% at a three year horizon. Higher inflation expectations in the New-York Fed survey follow a rise in both one-year and longer time expectations in the consumer sentiment report of the University of Michigan published last week. Home price expectations in the NY-Fed survey also ticked up to 3.3% after seven consecutive months at 3%, reaching their highest level since July 2022. However, answers on the labour market, income and spending showed a more mixed picture. Spending growth expectations also increased (0.2% to 5.2%). Median expected household income eased slightly (0.1%) to 3%. The average perceived likelihood of voluntary and involuntary job separation declined, as did the perceived likelihood of finding a job in the event of a job loss.

Indian inflation eased only slightly in April to 4.83% from 4.85% in March. A further/faster decline in inflation was hampered by elevated food price inflation. Food price inflation (about half of the country's inflation basket) rose 8.70% Y/Y in April up from 8.52 Y/Y in March. Inflation of most other components continues to ease. Fuel and power prices even were 4.24% lower. The Reserve Bank of India aims to bring inflation back to its 4% target. The April data suggest that it will keep its policy rate on hold at 6.5% at the next policy meeting early June. As is the case for several emerging market currencies, the Indian Rupee is trading in the defensive against a broadly strong dollar. At USD/INR 83.51, the Indian currency trades very close to the all-time lows reached last month (83.57).

ECB President Lagarde clearly hinted at a summer (June) rate cut which has broad backing. EMU disinflation continued in April and brought headline CPI closer to the 2% target. Together with weak growth momentum, this gives backing to deliver a first 25 bps rate cut. A more bumpy inflation path in H2 2024 and the Fed's higher for longer strategy make follow-up moves difficult. Markets have come to terms with that.

The Fed in May acknowledged the lack of progress towards the 2% inflation objective, but Fed's Powell left the door open for rate cuts later this year. Soft US ISM's and weaker than expected payrolls supported markets' hope on a first cut post summer, triggering a correction off YTD peak levels. Sticky inflation suggests any rate cut will be a tough balancing act. 4.37% (38% retracement Dec/April) already might prove strong support for the US 10-y yield.

Economic divergence, a likely desynchronized rate cut cycle with the ECB exceptionally taking the lead and higher than expected US CPI data pushed EUR/USD to the 1.06 area. From there, better EMU data gave the euro some breathing space. The dollar lost further momentum on softer than expected early May US data. Some further consolidation in the 1.07/1.09 are might be on the cards short-term.

Debate at the Bank of England is focused at the timing of rate cuts. Most BoE members align with the ECB rather than with Fed view, suggesting that the disinflation process provides a window of opportunity to make policy less restrictive (in the near term). Sterling's downside turned more vulnerable with the topside of the sideways EUR/GBP 0.8493 – 0.8768 trading range serving as the first real technical reference.

The currency market is awaiting the next big move as the US calendar picks up. Since the weekend, we have seen a moderate risk-on bias in G10 FX, with the safe-haven CHF, JPY and dollar trailing pro-cyclical European currencies. This may suggest investors felt no urge to increase defensive positions ahead of US inflation figures today and tomorrow.

The CPI report will have a larger market impact, although we have seen the dollar moving on tier-two data lately, so today's PPI figures for April can be a big event for markets too. Expectations are for a 0.2% month-on-month core PPI print, which would match the March figure – when core CPI printed a hot 0.4% MoM. It's also worth noting that inflation expectations have been on the rise, with yesterday's New York Fed survey showing one-year expectations at a five-month high (3.3%) after the University of Michigan also reported a similar development.

While markets have taken stock of the seemingly cooling US jobs market, data this week may indicate that the inflation picture remains more uncertain and still too hot for the Fed to revamp strong dovish communication. On the Fedspeak space, Chair Jerome Powell will participate in an event this afternoon, but major deviations from the recent policy tone does not seem too likely before inflation figures are published. On the data side, there is also the NFIB Small Business Optimism index to watch today, which has grown in relevance as a leading indicator recently.

The dollar has shown some tendency to asymmetrically bearish reactions to US data after the latest CPI print, so risks could look a bit skewed to the downside if one believes there are equal chances of an upside or downside surprise in inflation this week. In practice, inflation has mostly surprised on the upside recently and we suspect there are smaller chances of a lower print.

Consensus prints today and tomorrow may simply put off the whole inflation discussion by a few more weeks, and leave a market that has largely digested the "divergence" narrative (Fed vs. Europe) directionless for longer. A low-volatility environment favouring carry trades could be the norm for longer if this week's data fails to offer a different story.

The ZEW survey out of Germany is expected to show further improvements in sentiment today, even though the "current situation" index should remain deep into negative territory. If the notion of diverging monetary policy between the eurozone and the US is hardly new at this point, the one of slowly converging growth stories (US jobs slowing, eurozone outlook improving) may be preventing that kind of major rotation from EUR to USD that many had called for on the back of rate differentials last month.

Today, we'll also hear from the European Central Bank's Klaas Knot (speaking with Powell at the same event) and Isabel Schnabel. They are two hawkish members and we can probably expect some words of caution about future monetary easing plans beyond June.

EUR/USD will be moved by US data in the next couple of days. If we do not see substantial surprises, the pair will probably be able to consolidate further in the top end of its trading range and around the 1.0800 level.

The latest UK wage figures were a touch higher than expected, but this appears to be mainly linked to public sector pay. Private sector wage growth was more in line with what had been expected, and it's this that the Bank of England is paying closer attention to. That said, given that these figures have been more volatile recently, the Bank has indicated it is putting less weight on them than it was previously. Services inflation next week is ultimately what will make or break the June rate cut story (market currently pricing 50% chance). Meanwhile, the unemployment/employment figures are still believed to be highly unreliable and should be disregarded

EUR/GBP is trading almost unchanged after the releases at 0.859 but indicates downward heading. Our view remains generally bullish on the pair, but admit that a substantial move higher may well need to wait a bit longer and potentially only materialise in the summer, when we see markets pricing rate cuts beyond August more aggressively.

This morning, inflation in Romania showed a surprice drop from 6.6% to 5.9% year-on-year, well below all estimates and its lowest level since September 2021. Later today, the current account numbers for Poland, the Czech Republic and Romania will be released. Two speakers are scheduled in Hungary in the morning, with the National Bank of Hungary's Deputy Governor Barnabás Virag and Minister Márton Nagy expected to speak at the same event.

Yesterday, the National Bank of Romania decided to leave rates unchanged despite market expectations. We see the press release following the decision yesterday as slightly hawkish but it is clear that recent developments at home and abroad have managed to push back the start of the cutting cycle. The inflation report will be released tomorrow, however it seems we will have to wait a little longer for the first rate cut in Romania. We expect the first rate cut in August.

In the Czech Republic, inflation surprised significantly yesterday by rising from 2.0% to 2.9% YoY. Food prices and fuel prices are the main reasons, but headline inflation is still above the Czech National Bank's forecast. In our view, this will lead to an even more hawkish tone from the CNB and a slowdown in rate cuts from a 50bp pace per meeting to 25bp, and there is a risk of a pause in our view.

EUR/CZK fell 0.5% after the inflation surprise, making the CZK the strongest since February when the CNB raised the pace of rate cuts to 50bp. This shift in the CNB story is therefore a reason for us to drop our negative bias for the CZK that we have had for the past weeks and we no longer expect a renewed weakening, given that the CZK may instead get more support from the CNB. Even so, we still see the CZK outpacing market rates probably due to heavy positioning. EUR/CZK should thus remain in the 24.80-90 band for now, in our view.

Shiba Inu (SHIB), the Dogecoin-inspired meme coin with the adorable dog mascot, continues to captivate the crypto world. But what's happening with SHIB today, May 16, 2024? Let's delve into the latest news, analyze its price action, and explore what the future might hold for this intriguing cryptocurrency.

ShibaSwap Ecosystem Growth: The ShibaSwap decentralized exchange (DEX) continues to evolve. Recent updates include the launch of TREAT, a new governance token for the Shiba Inu ecosystem, allowing holders to participate in voting on future developments.

Shiba Inu Burn Portal: The burn portal, designed to reduce the overall circulating supply of SHIB tokens and potentially increase its value, remains a focal point for the community. However, the burn rate needs to significantly increase to have a major impact on price.

Shiboshi NFT Project: The highly anticipated Shiboshi NFT project, featuring 10,000 unique digital collectibles, has been met with mixed reactions. While some see it as a potential revenue stream for the project, others worry it might distract from the core utility of SHIB.

Listing on Major Exchanges: Shiba Inu's presence on major cryptocurrency exchanges like Binance, Coinbase, and Crypto.com continues to be a positive sign for wider adoption and price stability.

SHIB has experienced significant volatility since its launch in August 2020. After a meteoric rise in late 2021, fueled by social media hype and celebrity endorsements, the price has corrected in 2024.

Current Price: As of today, SHIB is hovering around $0.000025, which is a significant drop from its all-time high of $0.000088 in late 2021.

Technical Indicators: Technical indicators like the Relative Strength Index (RSI) suggest that SHIB is neither overbought nor oversold, indicating a period of potential consolidation.

Support and Resistance Levels: Identifying support and resistance levels can be helpful for understanding potential price movements. The crucial support level for SHIB lies around $0.000020. If the price falls below this level, further losses could occur. The next resistance level to overcome sits at $0.000030.

The future of Shiba Inu remains uncertain. Here are some factors that could influence its trajectory:

Utility and Use Cases: If the Shiba Inu ecosystem can develop real-world use cases beyond speculation, it could attract more investors and drive long-term price growth.

ShibaSwap Adoption: Widespread adoption of the ShibaSwap DEX and its features like staking and liquidity pools could boost the value of SHIB.

Community Engagement: The passionate and engaged Shiba Inu community is a double-edged sword. While it can drive social media buzz and influence price movements, it can also lead to impulsive decisions and price volatility.

Market Sentiment: The overall sentiment of the cryptocurrency market significantly impacts meme coins like SHIB. When the broader market is bullish, SHIB tends to follow suit, and vice versa.

Conduct Your Own Research: Don't base your investment decisions solely on social media hype or celebrity endorsements. Research the Shiba Inu project, its ecosystem, and the broader cryptocurrency market.

Invest Responsibly: The cryptocurrency market is inherently volatile. Only invest what you can afford to lose and have a clear risk management strategy in place.

Consider Long-Term Potential: If you believe in the long-term potential of Shiba Inu and its ecosystem, you might consider a long-term investment strategy. However, be prepared for price fluctuations.

Stay Informed: Keeping up with the latest news and developments surrounding Shiba Inu and the cryptocurrency market is crucial for making informed decisions.

Shiba Inu remains a fascinating experiment in the world of cryptocurrencies. While its future remains uncertain, the dedicated community, ongoing development of the ShibaSwap ecosystem, and potential for real-world use cases offer intriguing possibilities. By staying informed, conducting thorough research, and investing responsibly, you can navigate the ever-changing world of Shiba Inu and potentially participate in its future growth.

The major indices in Europe and the US across traded rangebound near their ATH levels and the US dollar index fluctuated a touch above the 105 level ahead of the US and European inflation updates that will start flowing in today.

The major story of Monday was a renewed rally in Gamestop and AMC shares after Keith Gill, aka, Roaring Kitty, posted on X for the first time since 2021. The moves revived the 2021's meme nostalgia, but the meme stocks will unlikely see their original glory. First, the macroeconomic setting is different: we are in a period of higher interest rates and tight monetary policies where the Federal Reserve (Fed) and other central banks are no longer pumping pandemic-rescue cash into the system. 2. People are not stuck home and savings have melted since the pandemic pile-up. 3. The trading volumes are nowhere close to 2021: around 700'000 options changed hands yesterday, while this number was around 8.5 mio back in 2021. And last but not least, most of the retail traders know that if they are the last the come in, they will lose it all. Of course, because the meme story is irrational, we can't predict what's next. But thank you, Roaring Kitty, for spicing up a day that would've otherwise been long hours of waiting for the US and European inflation numbers.

Let's go back to our beans. The US will release the PPI figures for April today. The core PPI is seen stable at 2.4% on a yearly basis, while headline PPI may have ticked slightly higher, from 2.1% to 2.2% last month. A figure in line, or ideally below expectation, should give a sigh of relief to the Fed doves, let the US dollar soften against major peers and help lift appetite in risk assets, while a figure above expectations will further dampen the Fed cut expectations, give a boost to the US dollar and weigh on stock and bond valuations.

Across the Atlantic Ocean, headline inflation in the Eurozone may have stabilized near 2.4% and core inflation may have eased further to 2.7% from 2.9% printed a month ago.

This week's inflation updates should maintain the 'diverging inflation dynamics' narrative live. The US inflation is seen heating up whereas inflation in the Eurozone and the UK are forecasted to continue their journey to the south – toward the central banks' 2% inflation target. The latter divergence obliges the Fed to postpone its rate cut plans, but keeps the European Central Bank (ECB) and the Bank of England (BoE) on track to cut their rates this summer.

Both the ECB and the BoE say that they are 'data dependent and not Fed dependent'. But that's true under one condition: the euro and sterling should not depreciate significantly against the USD. So far, both the euro and sterling resist surprisingly well to the divergence between the hawkish Fed versus dovish ECB and BoE.

Slight improvement in EZ growth numbers versus a significant slide in the latest growth data partly explain the tempered USD appreciation.

The idea that the Fed's next move is a rate cut – even if it comes a bit later than many have hoped at the start of the year – prevents the USD bulls from coming back forcefully in charge. The Fed also announced to slow QT at the March meeting.

Yet, note that the US dollar index advanced up to 5% since the start of this year and risks are tilted to the upside as long as we don't see the US inflation return to the falling path.

And the reality is that we are all Fed dependent. No matter what the ECB and the BoE say, they can't walk it alone if the US dollar appreciates due to a U-turn in the US inflation. A significant dollar appreciation would boost inflation in the Eurozone and the UK, and bring the ECB and the BoE to review their rate cutting plans beyond summer.