The Morning Update

The USD strengthens, oil prices ease, and equity markets are mostly down, with US yields mixed amid tariff threats. The USD strengthens due to President Trump's threat to impose additional 10% tariffs on countries supporting the BRICS alliance policy. Equity markets retreated ahead of a potentially volatile week as US trading partners attempt to finalize trade deals with Washington ahead of the July 9th tariff deadline. So far, only the UK, China and Vietnam have agreed to any sort of trade deal with the Trump administration. Tesla Inc. fell more than 7% in premarket trading following Musk's announcement that he was considering forming a new political party, which could trigger a backlash from President Trump. Elsewhere, oil prices experienced a volatile start to the week following OPEC+'s output hike and tariff concerns. Bitcoin firmed to $108.9k, while gold and silver prices weakened in early trading. In focus this week, on Monday, there are no key economic releases. Tuesday, Australia Interest Rate Decision. CAD Ivey PMI and China CPI. Wednesday, the US Tariff deadline, and the FOMC Minutes. Thursday, the German Harmonized Index of Consumer Prices, and the US Initial Jobless Claims. Friday, the UK GDP and CAD unemployment rate, will help provide direction to currency markets this week.

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In the news. Trump threatens an extra 10% tariff over 'anti-American' BRICS policies. Netanyahu and Trump to discuss new Gaza deal at the White House. Hong Kong's listings pipeline hits a record high as the equity market booms. China boosts nickel reserves as tensions with the US simmer. The EU and China standoff over climate action before Xi and von der Leyen meet. Trump calls Musk's formation of a new party 'ridiculous.' Facing battlefield setbacks, Ukraine withdraws from the Mine Ban Treaty. Danielle Smith and Doug Ford to sign agreements in Calgary today. Carney says it's highly likely an oil pipeline will make Ottawa's major project list.

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In currency markets. Currency markets weakened as the US rallied amid fresh US tariff threats. JPY tumbled after May real wages fell by 2.9% y/y, the sharpest decline in nearly two years and the 5th consecutive monthly decline, limiting the prospect that the BoJ will raise its domestic interest rates. CNY eased 0.15%, while Asian currencies fell 0.35% on average against the USD. Trading currencies under pressure, with NOK and ZAR tumbling 0.95%, JPY, AUD, CHF, and NZD weakening 0.75%, MXN, DKK & CZK falling 0.4% and SEK flat against the USD.

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In commodity markets. Oil prices slipped 0.1%. Natural Gas & Wheat prices tumbled 3.5%. Gold and silver prices are falling 0.75%. Copper and soybeans weakened 1.8%.

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CAD weakens almost 100 bps against the USD in sync with other commodity-based peer currencies, as commodity prices decline across the board due to the threat of a global slowdown from fresh tariff threats and the OPEC+ decision to increase output to 548k barrels per day in August. This week features a light US economic calendar, so the focus will be on the CAD Ivey PMI and Friday's CAD unemployment report to help provide direction for the loonie. Markets will continue to monitor the US July 9th tariff deadline and any updates on the CAD/US trade negotiations.

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EURCAD advances as the commodity-based loonie comes under greater selling pressure as commodity prices weakened in early trading.

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EUR trades through 1.1750 amid strengthening USD as the US tariff deadline approaches. The euro eases in early trading as USD rebounds amid increasing tariff uncertainty with the US threatening additional 10% tariffs. At the same time, the EU looks set to secure a limited trade deal with the US by the July 9th deadline. Maros Sefcovic, the EU chief trade negotiator, reported some progress toward an agreement after meeting in Washington last week. The two sides continued to discuss the matter over the weekend, with expectations growing for a patchwork deal to be finalized by Wednesday, which could pave the way for more comprehensive negotiations.

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GBPEUR holds steady in early trading as both currencies outperformed their commodity-based peers, while investors are sideline with the lack of key US economic releases today.

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GBP weakens to test 1.3600 amid a stronger USD and mounting UK fiscal pressures. The pound tests fresh July lows against the USD, undermined by a risk-off market sentiment and fresh US tariff threats, which pressure investors' confidence. Domestically, after last week's UK PM reversal on the standard allowance to the Universal Credit, which is expected to put pressure on the government to either increase taxes or increase spending cuts to cover the GBP 4.8 billion by fiscal 2029-30. Chancellor Reeves said in an interview with the BBC, "Of course, there is a cost to the welfare changes that Parliament voted through this week and that will be reflected in the Budget."

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