Trade Risks Crystalize

White House comments to start the week tied tariffs to NAFTA and were seen as a sign that the President has a strategy. The pound was the top performer while the Canadian dollar lagged. The RBA decision is up next. The English Premium video is below . يمكن مشاهدة فيديو المشتركين أدناه

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Global stock markets bounced and the yen slipped on Monday as rhetoric shifted on steel tariffs. What looked like a hasty decision to put on global tariffs may have been part of a strategy to leverage a better NAFTA deal. Trump and US NAFTA negotiator Lighthizer both said Canada and Mexico would win exemptions from the tariffs if they made a NAFTA agreement.

It's entirely unclear what kind of agreement Trump wants or if US NAFTA partners can accept it but for now, markets were comforted by signs of a plan.

One pocket of weakness was the Canadian dollar as mounting risks pushed USD/CAD above the technically-critical 1.2920 level to the highest since June. That fear ties into Wednesday's BOC decision and a growing likelihood of a more-neutral stance because of greater trade and economic risks.

Yet, it remains unclear if Trump has a bigger plan for tariffs outside of NAFTA. Many leaders want to see the text of what Trump is proposing before taking a step towards retaliation.

Looking ahead, it's a big day for AUD traders with current account and retail sales at 0030 GMT followed by the RBA decision three hours later. Retail sales are forecast to rise 0.4% after a 0.5% decline in December. It's been volatile time for the numbers but consumer confidence has been rising.Trade, meanwhile is expected to show next exports pulling GDP 0.6 pp lower and the current accounts in a deficit of A$12.2B.

Whatever the numbers, the market will be reluctant to make a move before the RBA weighs in. Lowe has been more optimistic lately and expects GDP to accelerate to 3.25% y/y by the end of 2018 but recent wage numbers have been soft.