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The Canadian dollar continues to have a quiet week. In the North American session, USD/CAD is trading at 1.3920, down 0.21% on the day.

Canadian CPI eases to 1.7%, core CPI higher

Canada released the April inflation report, which indicated that headline and core inflation were moving in opposite directions. Headline CPI dropped sharply to 1.7% y/y, down from 2.3% but shy of the market estimate of 1.6%. This was the lowest annual inflation rate in seven months. The sharp drop was driven by the end of the consumer carbon tax, with gasoline prices dropping 18% lower compared to April 2024.

Core inflation accelerated in April, with two key indicators rising to an average of 3.15%, compared to 2.85% in March. This was above the market estimate of 2.9%.
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Will BoC cut rates in June?

The money markets have responded to the inflation data, lowering the probability of a rate cut at the June 4 meeting to 48%, down from 65% prior to the inflation release.

The Bank of Canada has been aggressive in its easing cycle, trimming rates seven straight times from June 2024 until April, when it held rates. The cash rate is currently at 2.75% but the BoC is hesitant to lower in the midst of the uncertainty over the US trade tariffs, which have led to sharp swings in the stock markets.

There are no US events on the calendar and the markets will be all ears as a host of FOMC members make public statements today. Investors will be looking for insights into the Fed's rate path. The Fed is widely expected to hold rates in June and may cut as little as twice in the second half of the year. That could change, depending on inflation, the US labor market and Trump's tariffs.

USD/CAD Technical

• USD/CAD is testing support at 1.3936. Below, there is support at 1.3911
• There is resistance at 1.3952 and 1.3977

USDCAD 4-Hour Chart, May 20, 2025

AUDUSD fell on Tuesday after the Reserve Bank of Australia cut interest rate by 25 basis points, in a widely expected decision.

Fresh weakness has fully reversed Monday advance and heading into the lower part of the recent 0.6350/0.6500 congestion, as the pair holds within a broader range in extended consolidation under new 2025 high (0.6514).

Weaker US dollar continues to fuel its Australian counterpart, which implies that negative impact of RBA’s rate cut on Aussie, might be limited.

Situation on daily chart shows that larger uptrend from 0.5914 (2025 low, posted on Apr 9) is in consolidative phase and expected to remain in play while the price stays above consolidation floor.

Technical picture is still positive overall, although with fading bullish momentum and 200DMA (0.6454) marking significant barrier after several attempts failed to register clear break higher.

Cautious playing within the range is currently preferred scenario, with focus on reaction on key levels – 0.6350 on the downside or 0.6454/0.6500 at the upside, which would provide clearer direction signals.

Res: 0.6454; 0.6500; 0.6514; 0.6550.
Sup: 0.6373; 0.6350; 0.6300; 0.6285.

Tariff wars have increased the legitimacy of stimulus measures in Europe and Asia. Since the start of the year, the ECB and Bank of England have been aggressively cutting rates against the Fed’s continued rate hikes. The People’s Bank of China made a small, 0.1 percentage point cut on Tuesday morning. Earlier this year, Germany announced an $800 billion package of support for the economy, abandoning a tight budget framework, contrasting with the mood for budget deficit reduction in the United States.

Germany’s DAX40 hit all-time highs on Monday. The German market is feeling the envy of its peers, trading in the 24000 area, nearly 28% above the early April lows. The FTSE100 is less than 2% off its peaks set in early March. This has been achieved, contrary to the more than 8% strengthening of the pound and euro against the dollar since the start of the year and is indicative of the strength of Europe’s markets against the US. This is a higher rate of growth in the case of the DAX and a stronger recovery in the case of the FTSE.

Stimulus measures from Europe and China are working like a rising tide, boosting the overall level of equities. Should the US enter the stimulus race through Fed policy easing, this would spur the S&P 500 and Nasdaq 100 higher, but it would be just as objectively positive for Europe and Asia.

The market dynamics in Germany and the UK starkly contrast with the sentiment and outlook of economists in light of the trade wars. It is not uncommon to see markets one step ahead of the economic consensus, but that makes it no less interesting to see if markets can thrive against forecasters’ pessimism.

The Australian dollar has posted sharp losses on Tuesday, following the Reserve Bank's decision to lower interest rates. Early in the North American session, AUD/USD is trading at 0.6395, down 0.95% on the day.

RBA lowers rates to 3.85%

The Reserve Bank of Australia has lowered its cash rate from 4.15% to 3.85%. The decision was widely expected but the Australian dollar is down sharply as the RBA expressed concern about the impact of tariffs on Australia's economy.

Today's cut was the second this year, as the RBA has been lagging behind other major central banks in lowering rates. Today's decision was driven by two factors. First, core CPI eased to 2.9% in April. This was significant as it marked the first time in two years that underlying inflation has fallen back within the RBA's target range of 1%-3%.

Secondly, the outlook for the global economy has worsened due to the US tariffs and counter-tariffs. President Trump's tariff policy has been erratic, as reflected in the US slapping 145% tariffs on China, only to reduce them to 30% for a 90-day period.

The RBA statement highlighted both of these factors in its decision to lower rates. The statement noted that the outlook for inflation, growth and employment in Australia had been downgraded due to the US tariffs. Governor Michele Bullock bluntly stated that the global situation was "unpredictable" and a "complete rollercoaster".

The RBA will be carefully monitoring Trump's tariff policy, especially with China, as Australia is hugely dependent on its exports sector and further escalations in the global trade war would damage the economy.

There are no US events on the calendar but we'll hear from a host of FOMC members today, which could provide some insights into the Fed's rate path. The Fed is widely expected to hold rates in June and may cut as little as twice in the second half of the year. That could change, depending on inflation, the US labor market and Trump's tariffs.

AUD/USD Technical

• AUD/USD has pushed below support at 0.6440 and 0.6415. Below, there is support at 0.6373
• There is resistance at 0.6482 and 0.6507

AUD/USD 1-Day Chart, May 20, 2025

Markets

All eyes were on Japan. A flopped 20-yr bond auction pushed long-term Japanese bond yields through the roof and immediately raised the stakes for next week’s 40-yr sale. Japan’s fiscal position is a very weak one with its prime minister yesterday calling it even worse than Greece’s. Its huge debt pile is already around 250% of GDP. A lot of debt is owned domestically, of which >45% by the Bank of Japan. However, the Bank of Japan has been slowing down bond purchases as part of its policy normalization and it appears that other domestic bond holders (>40% of outstanding JGBs) do not jump in to fill the gap. Debt and fiscal unsustainability concerns lie at the heart of the matter and the auction was merely a trigger. The Japanese 30-yr hit an intraday record high (3.15%) while the 40-yr tenor closed at one (3.59%). Spillovers to core bond markets were limited at first but shortly after the European opening bell yields headed north nonetheless. That didn’t stop at the US open. Net daily changes currently vary between +1.7 bps (2-yr) to +8.7 bps (30-yr) in the US and up to 6.7 bps (30-yr) in Germany. UK gilt yields staged a sharp intraday U-turns, erasing a 6 bps opening drop to trade 4.5-5.4 bps higher, not in a bear steepener though, but in a flattener. Bank of England chief economist Pill was remarkably vocal in pushing back against rates being cut too quickly. Pill wanted to keep the policy rate steady at this month’s meeting, worrying that rates are coming down too fast in the face of still elevated pay increase and robust services inflation. His fears stem from the fact that the UK may have entered a new regime where price shocks no longer fade “quickly and painlessly” as behaviour of firms and households fundamentally changed. The chief economist said rates have plateaued too low in 2023 (5.25%) and therefore argues for cautious cuts only. In practice that means an even slower pace than the current quarterly one.

Pill’s comments barely support sterling, though. EUR/GBP continues to trade in an extremely tight trading range just north of 0.84. Other currencies trade little changed. EUR/USD holdq steady around 1.123, the trade-weighted dollar index kept the 100 lever alive. The Japanese yen does not capitalize on the huge yield jump, most likely because it’s risk premia driving the move higher. It even erased an early Asian gain that rooted from finance minister Kato seeking bilateral FX talks with US Treasury Secretary Bessent. USD/JPY is currently changing hands around 144.88. The Aussie dollar underperforms global peers today in the wake of the RBA’s 25 bps rate cut. While the move was expected, the softish policy statement and press conference was not.

News & Views

Belgian consumer confidence bounced back in May, from the lowest level since December 2022 (-14) to the second best reading since October of last year (-7). More positive expectations for the general economic situation (-30 from -44) and diminishing concerns about unemployment (13 from 21) made a particularly strong contribution to the boost in confidence. The improvement in confidence is also apparent at the personal level. Households report improved expectations for their own financial situation (-3 from -8). Their saving intentions are also up slightly (19 from 17). Belgian consumer confidence is now again at its long-term average (1990-2024). On Thursday, the National Bank of Belgium releases its May update for business confidence. A rebound can be expected as well as on the back of easing global trade tensions which reduce recession risks.

Headline Canadian inflation fell by 0.1% M/M with the annual figure falling back below the Bank of Canada’s 2% inflation target (1.7% from 2.3% vs 1.6% consensus and vs 1.5% expected by the BoC). The slowdown in April was driven by lower energy prices, which fell 12.7% and comes mainly from the removal of a consumer carbon tax. Excluding food and energy, core inflation accelerated by 0.5% M/M or from 2.4% to 2.6% in Y/Y-terms. The Bank of Canada’s preferred gauge (trimmed mean) rose by 0.4% M/M and from 2.9% Y/Y to 3.1% Y/Y, the fastest pace since March of last year. The acceleration in core inflation was more fierce than expected and pushes BoC rate cut bets for the June 4 policy meeting below 50%. The preferred outcome is now a policy rate status quo in line with the April decision. Today’s inflation report was the penultimate major input for the central bank with Q1 GDP numbers still due on May 30. The Canadian Loonie trades slightly stronger after the CPI report around USD/CAD 1.3920.

Daily Pivots: (S1) 144.52; (P) 145.00; (R1) 145.33; More...

Intraday bias in USD/JPY stays neutral at this point. Further rally is in favor as long as 144.02 support holds. Above 146.08 minor resistance will target 148.64 first. Firm break there will resume the rally from 139.87 to 61.8% retracement of 158.86 to 139.87 at 151.60 next. However, firm break of 144.02 will bring retest of 139.87 low instead.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low), with fall from 158.86 as the third leg. Strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Daily Pivots: (S1) 0.8318; (P) 0.8349; (R1) 0.8378; More….

USD/CHF breached 0.8323 support but failed to sustain below. Intraday bias stays neutral first. On the downside, firm break of 0.8323 support will argue that corrective rebound from 0.8038 has completed at 0.8475, after rejection by 38.2% retracement of 0.9200 to 0.8038 at 0.8482. Intraday bias will be back on the downside for 0.8184, and then retest of 0.8038 low. However, sustained trading above 0.8482 will dampen this bearish view and target 61.8% retracement at 0.8756 next.

In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress and met 61.8% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.8079 already. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.8765) holds. Sustained break of 0.8079 will target 100% projection at 0.7382.

Daily Pivots: (S1) 1.3283; (P) 1.3344; (R1) 1.3421; More...

Intraday bias in GBP/USD stays mildly on the upside for the moment. Decisive break of 1.3433/42 key resistance zone will confirm larger up trend resumption. On the downside, though, below 1.3249 support will extend the corrective pattern from 1.3442 with another falling leg.

In the bigger picture, up trend from 1.3051 (2022 low) is still in progress. Decisive break of 1.3433 (2024 high) will confirm resumption. Next medium term target is 61.8% projection of 1.0351 to 1.3433 from 1.2099 at 1.4004. Nevertheless, sustained trading below 55 D EMA (now at 1.3112) will delay the bullish case and bring more consolidations first.

Headline CPI inflation for April came in at 1.7% year-on-year (y/y), down from 2.3% y/y in March but above expectations for a 1.6% y/y print.

The deceleration was due to gasoline prices tumbling 18.1% y/y as the consumer carbon price was removed. Also notable was the bounce-back in travel tour prices, which rose 6.7% y/y in April after a 4.7% y/y fall in March.

Prices on food purchased from stores rose 3.8% y/y, also adding to April's inflation.

The Bank of Canada's (BoC) preferred "core" inflation measures both accelerated, with the CPI-Trim rising from 2.9% y/y to 3.1% y/y in April, and the CPI-Median jumping from 2.8% y/y to 3.2% y/y.

Key Implications

Top line inflation seemingly offered a reprieve, but the details of the report show that underlying inflation pressures picked up. Both of the BoC's "core" measures showed a notable uptick in April, rising 0.2 and 0.4 percentage points in the month. Even the traditional "core" measure of CPI (excluding food and energy prices) rose from 2.4% in March to 2.6% in April. As highlighted in our prior commentary, we had expected the inflationary impacts of tariffs to start flowing through later in the second quarter of the year – the jump in April suggests this could be happening sooner than expected.

Today's inflation print is a setback for the BoC and complicates the picture for the path of monetary policy. However, with the government of Canada offering a temporary reprieve on some tariffs, and the labour market slowing rapidly, we believe the central bank will have enough space to deliver two more cuts this year – adding a bit more support to an economy quickly losing momentum.

Daily Pivots: (S1) 1.1180; (P) 1.1234; (R1) 1.1296; More...

Range trading continues in EUR/USD and intraday bias remains neutral. On the upside, decisive break of 1.1292 resistance should indicate that correction from 1.1572 has already completed after defending 38.2% retracement of 1.0176 to 1.1572 at 1.1039. Intraday bias will be turned back to the upside for retesting 1.1572 next. However, sustained break of 1.1039 will bring deeper decline to 61.8% retracement at 1.0709 next.

In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will now remain the favored case as long as 55 W EMA (now at 1.0818) holds.