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Daily Pivots: (S1) 1.4165; (P) 1.4179; (R1) 1.4199; More...

USD/CAD is staying in tight range above 1.4150 temporary low and intraday bias remains neutral. Deeper decline will remain in favor as long as 1.4378 resistance holds. Fall from 1.4791 is correcting whole rise from 1.3418. Break of 1.4150 will target 1.3946 cluster support (61.8% retracement of 1.3418 to 1.4791 at 1.3942).

In the bigger picture, long term up trend is tentatively seen as resuming with prior breach of 1.4667/89 key resistance zone (2020/2015 highs). Next target is 100% projection of 1.2401 to 1.3976 from 1.3418 at 1.4993. This will remain the favored case as long as 1.3976 resistance turned holds (2022 high), even in case of deep pullback.

Forex markets remained subdued today, with muted reactions to key economic data. Dollar held broadly higher as traders focused on the US-Russia peace talks, where both sides agreed to continue discussions on ending Russia’s invasion of Ukraine. However, meaningful progress is unlikely without direct involvement from Ukraine and European nations, keeping market uncertainty elevated.

Canadian Dollar traded mixed following slightly stronger-than-expected core inflation data. Despite this, with headline CPI below 2% and CPI common just above 2%, BoC is still expected to gradually lower rates toward neutral levels.

British Pound showed little reaction to strong UK labor market data, including strong wage growth. BoE Governor Andrew Bailey commented that the figures did not alter the central bank’s outlook, keeping rate expectations steady. Similarly, Euro ignored a notable improvement in German economic sentiment, which suggests the economy may finally be stabilizing.

Australian Dollar remains supported following RBA’s cautious rate cut, with the central bank signaling that the easing cycle will proceed gradually and may not be as deep as previously expected.

Looking ahead, RBNZ rate decision is the primary focus in the upcoming Asian session, where markets anticipate a 50bps rate cut, bringing the OCR down to 3.75%, moving closer to neutral levels. A key point of interest will be whether RBNZ signals a slowdown in the pace of easing, and traders will analyze economic projections for insights into the terminal rate.

Technically, NZD/USD's rebound from 0.5515 is seen as a correction to the fall from 0.6378. While another rise cannot be ruled out, upside should be limited by 38.2% retracement of 0.6378 to 0.5515 at 0.5848. Break of 0.5622 minors support will argue that the corrective bounce has completed, and bring retest of 0.5515 low.

In Europe, at the time of writing, FTSE is up 0.16%. DAX is up 0.24%. CAC is up 0.31%. UK 10-year yield is up 0.032 at 4.570. Germany 10-year yield is up 0.012 at 2.504. Earlier in Asia, Nikkei rose 0.25%. Hong Kong HSI rose 1.59%. China Shanghai SSE fell -0.93%. Singapore Strait Times rose 0.53%. Japan 10-year JGB yield rose 0.0435 to 1.436.

Canada’s CPI rises to 1.9% in Jan, core inflation ticks up

Canada’s headline CPI increased from 1.8% yoy to 1.9% yoy in January, in line with expectations. The rise was driven by higher energy costs, particularly gasoline and natural gas, while GST/HST tax break introduced in December helped offset broader price pressures.

Food prices fell -0.6% yoy, marking the first annual decline since May 2017, led by a record -5.1% yoy drop in restaurant food prices.

On a monthly basis, CPI rose 0.1% mom, rebounding from December’s -0.4% mom decline.

Core inflation strengthened, with CPI median rising to 2.7% yoy from 2.6% yoy, CPI trimmed increasing to 2.7% yoy from 2.5% yoy, and CPI common edging up to 2.2% yoy from 2.0% yoy.

German ZEW jumps to 26 in Feb, optimism ahead of elections

German ZEW Economic Sentiment Index surged from 10.3 to 26.0 in February, surpassing expectations of 20.2 and reflecting growing optimism about Germany’s economic outlook. Current Situation Index also showed a slight improvement, rising from -90.4 to -88.5, beating forecasts of -89.0.

Eurozone ZEW Economic Sentiment rose from 18.0 to 24.2, falling short of the anticipated 25.4, while the Current Situation Index climbed by 8.5 points to -45.3.

According to ZEW President Achim Wambach, the sharp rise in expectations is likely driven by hopes for a "new German government capable of action" ahead of the federal election, alongside expectations for a rebound in private consumption over the next six months.

UK wages growth accelerates in Dec, payrolled employment rose 21k in Jan

The latest UK labor market data presents a mixed picture, with payrolled employment rising by 21k (0.1% mom) in January, but the Claimant Count increasing by 22 to 1.75 million. Meanwhile, median monthly pay reached £2,467, reflecting a 5.7% yoy increase, reinforcing concerns about wage-driven inflation pressures.

Looking at the broader employment trend, data for the three months to December showed that the employment rate edged up by 0.1 percentage point to 74.9%, while the unemployment rate also ticked higher by 0.1 percentage point to 4.4%.

Wage pressures remain elevated, with average earnings including bonuses accelerating from 5.5% yoy to 6.0% yoy, and earnings excluding bonuses rising from 5.6% yoy to 5.9% yoy.

RBA cuts rates, but warns against easing too much too soon

RBA lowered its cash rate target by 25bps to 4.10%, as widely anticipated, but signaled a cautious approach to further easing.

In its statement, the central bank emphasized that monetary policy will remain restrictive even after today’s reduction, warning that if rates are “eased too much too soon”, disinflation progress could stall and inflation could settle above the midpoint of the target range.

RBA acknowledged that some upside risks to inflation “appear to have eased”, and disinflation may be unfolding “a little more quickly than earlier expected”. However, it maintained that “risks on both sides” remain.

While today’s cut reflects the central bank’s confidence in recent progress, policymakers remain “cautious about the outlook”, reinforcing the idea that future easing will be data-dependent rather than pre-committed.

In the new economic projections:

• Headline CPI is now projected to rise to 3.7% by the end of 2025, before gradually easing to 2.8% by the end of 2026 (raised from 2.5%), and settling at 2.7% by mid-2027.
• Trimmed mean CPI is expected to remain at 2.7% throughout 2025, 2026, and mid-2027.
• Unemployment rate forecast was lowered to 4.2% across the projection horizon
• Year-average GDP growth was revised down by 0.1% to 2.1% for 2025, while 2026 remains unchanged at 2.3%, with growth expected to hold steady at 2.3% into 2026/2027.
• Cash rate assumptions suggest an average rate of 3.6% in 2025, followed by 3.5% in 2026.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.4165; (P) 1.4179; (R1) 1.4199; More...

USD/CAD is staying in tight range above 1.4150 temporary low and intraday bias remains neutral. Deeper decline will remain in favor as long as 1.4378 resistance holds. Fall from 1.4791 is correcting whole rise from 1.3418. Break of 1.4150 will target 1.3946 cluster support (61.8% retracement of 1.3418 to 1.4791 at 1.3942).

In the bigger picture, long term up trend is tentatively seen as resuming with prior breach of 1.4667/89 key resistance zone (2020/2015 highs). Next target is 100% projection of 1.2401 to 1.3976 from 1.3418 at 1.4993. This will remain the favored case as long as 1.3976 resistance turned holds (2022 high), even in case of deep pullback.

Canada’s headline CPI increased from 1.8% yoy to 1.9% yoy in January, in line with expectations. The rise was driven by higher energy costs, particularly gasoline and natural gas, while GST/HST tax break introduced in December helped offset broader price pressures.

Food prices fell -0.6% yoy, marking the first annual decline since May 2017, led by a record -5.1% yoy drop in restaurant food prices.

On a monthly basis, CPI rose 0.1% mom, rebounding from December’s -0.4% mom decline.

Core inflation strengthened, with CPI median rising to 2.7% yoy from 2.6% yoy, CPI trimmed increasing to 2.7% yoy from 2.5% yoy, and CPI common edging up to 2.2% yoy from 2.0% yoy.

Full Canada CPI release here.

US500, Daily

In the Daily timeframe, the US500 hit an all-time high, testing the trendline. Tenkan rose above Kijun on Ichimoku Kinko Hyo, and the RSI divergence broke upward, indicating bullish dominance.

• We can consider buying US500 on consolidation above the trendline and 6140 with a target of 6310;

The Australian dollar is drifting on Tuesday after three straight days of gains. In the European session, AUD/USD is trading at 0.63671, up 0.09% on the day.

RBA lowers rates to 4.1%

The Reserve Bank of Australia cut the cash rate by a quarter-point on Tuesday to 4.10%. The decision was widely expected and the Australian dollar has shown little reaction. Still, the move is a milestone, as the RBA delivered its first rate cut in over four years. The central bank has maintained rates at 4.35% for over a year, as it remained concerned about the upside risk of inflation, even as headline CPI has fallen back within the 2%-3% target.

The rate statement was on the hawkish side, with RBA members stating that while the decision “recognises the welcome progress on inflation, the Board remains cautious on prospects for further policy easing”. This was a message to the market not to expect a series of rate cuts this year and to expect the easing cycle to be short-lived. The statement noted that the labor market has been “unexepectedly strong” and uncertainty remained about domestic economic activity and inflation.

The RBA rate cut also carries significant political implications. Prime Minister Anthony Albanese’s Labor government is in a tight election race and Albanese will be try to use the rate cut to his advantage and argue that the move is a result of the government’s economic policies.

Australia releases wage growth on Wednesday. The wage price index for the fourth quarter is expected to remain at 0.8% q/q and dip to 3.2% y/y from 3.2% in the third quarter.

AUD/USD Technical

• There is resistance at 0.6402 and 0.6452
• 0.6318 and 0.6268 are the next support levels

German ZEW Economic Sentiment Index surged from 10.3 to 26.0 in February, surpassing expectations of 20.2 and reflecting growing optimism about Germany’s economic outlook. Current Situation Index also showed a slight improvement, rising from -90.4 to -88.5, beating forecasts of -89.0.

Eurozone ZEW Economic Sentiment rose from 18.0 to 24.2, falling short of the anticipated 25.4, while the Current Situation Index climbed by 8.5 points to -45.3.

According to ZEW President Achim Wambach, the sharp rise in expectations is likely driven by hopes for a "new German government capable of action" ahead of the federal election, alongside expectations for a rebound in private consumption over the next six months.

Full German ZEW release here.

Today, the Reserve Bank of Australia (RBA) eased monetary policy, cutting the interest rate from 4.35% to 4.10%, according to Forex Factory.

As reported by Reuters:

→ This marks the first easing since the 2020 pandemic;

→ RBA Governor Michele Bullock stated that market expectations for two more cuts this year are “ambitious”;
→ The bank’s leadership remains cautious about further easing prospects.

While analysts had accurately predicted the February rate cut, AUD/USD saw volatility without a significant move, possibly because market participants are more focused on Trump’s tariff plans, which could impact global trade and Forex markets.

Technical Analysis of AUD/USD Today

Since mid-December, the AUD/USD pair has mostly traded within the 0.6200–0.6300 range, except for early February’s sharp drop when Trump’s tariff policies shook currency markets.

However, demand appears resilient:

→ After plunging to around 0.6100, the price quickly rebounded into the range;

→ Arrows highlight rapid recoveries after short-term dips;

→ A blue ascending trend channel is forming on the chart.

These factors suggest growing appeal for the Australian dollar, with the 0.6300 level potentially acting as support going forward.

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Markets

Spotlights were on Europe yesterday. US financial markets were closed for President’s Day while French president Macron summoned a handful of European leaders as well as EC president von der Leyen and Nato chief Rutte. The goal was not so much to announce big defense initiatives – Europe’s buy-in at the negotiation table with Russia – as it was to show the EU’s decisiveness and speediness when it is once again cornered. Actual decisions, however, require all 27 member states to be part of the discussions. Funding as always will be one of the key topics. Options include an escape clause that keeps defense spending out of the fiscal equation so that countries can still abide by the 3% deficit rule or re-purposing existing funds (e.g. unused resources of the pandemic recovery fund). Eventually, though, we think we will end up in a Next Generation EU-style joint borrowing on the European level. Resistance from some of the staunchest opposition indeed appears to be easing. Either way, setting up a European defense architecture is going to require massive investments with a significant part of that being recurring. German bunds underperformed vs swap with yields rising between 2.7 and 7 bps in a bear steepening move. French OATs declined as well, pushing up rates 1.7-5.2 bps. UK gilts outperformed (+0.4-3.2 bps). The country is already spending 2%+ on defense, making the additional effort relatively smaller compared to European peers. The euro closed lower, against the dollar (EUR/USD <1.05) but more so against sterling. EUR/GBP turned to the 0.83 big figure ahead of some economic data scheduled for release starting today. The labour market report was strong on all accounts – 6% wage growth, a lower-than-expected unemployment rate and consensus-topping employment gains. EUR/GBP 0.83 is cracking. The US Treasury market reopened in Asia by adding several basis points across the curve. Fed governor Waller said inflation didn’t show any real progress in recent months. A similar pattern emerged in 2024 which was then followed by easing price pressures after all that paved the way for the first rate cuts later in the year. Waller said this may be the case again in 2025 but until that’s clear, he favours to keep rates steady. Today’s eco calendar has not that much to offer but the geopolitical one does. US secretary of state Rubio, national security adviser Waltz, and Witkoff, Trump’s special envoy to the Middle East, will be meeting Russia’s foreign policy advisor Ushakov and foreign minister Lavrov in Riyadh. It’s the high-level first in-person meeting since the invasion in 2022. We keep a slight bearish bias on core bonds and are neutral on EUR/USD. While the prospect of a ceasefire and eventual end to the war is positive for the euro, there are too many uncertainties as well as other topics including tariffs that are holding the common currency back.

News & Views

After holding its policy rate at 4.35% since November 2023, the Reserve bank of Australia (RBA) today made a first step in easing policy restriction as it cut the policy rate by 25 bps to 4.10%. The RBA assesses that inflation has fallen substantially as higher interest rates have been working to bring aggregate demand and supply closer in balance. Underlying inflation reached 3.2% in the December quarter, a little faster than expected. Demand growth has been subdued and wage pressures have eased, giving the Board more confidence that inflation is moving sustainably to the 2-3% RBA target. However, the RBA still holds a cautions stance on further easing as risks to inflation are seen to the upside. In this respect, RBA refers to unexpectedly strong labour data of late. The RBA also slightly upwardly revised to path for underlying inflation over 2026 (2.7% EoY from 2.5%) and warns on a high degree of uncertainty both on growth and inflation. Policy will remain restrictive after today’s decision. At the press conference, governor Bullock explicitly said that the RBA can’t declare victory on inflation yet and that today’s decision doesn’t imply that further cuts are coming. For that more evidence on inflation is needed. The 3-y government bond yield rises about 6 bps (3.93%). AUD/USD trades unchanged at 0.636 despite overall USD strength.

According to (outgoing) member of the Hungarian central bank (MNB) Gyula Pleschinger, the MNB has no room to cut its policy rate this year. At the same time he also sees it unthinkable for the MNB to hike rates. Pleschinger indicated that the new MNB leadership under the former Finance Minister Mihaly Varga will remain focused on the bank’s price stability mandate. Pleschinger expects inflation to restart declining in February after the surprise uptick (1.5% M/M and 5.5% Y/Y) in January to return to 4.0% by the end of the year.

The latest UK labor market data presents a mixed picture, with payrolled employment rising by 21k (0.1% mom) in January, but the Claimant Count increasing by 22 to 1.75 million. Meanwhile, median monthly pay reached £2,467, reflecting a 5.7% yoy increase, reinforcing concerns about wage-driven inflation pressures.

Looking at the broader employment trend, data for the three months to December showed that the employment rate edged up by 0.1 percentage point to 74.9%, while the unemployment rate also ticked higher by 0.1 percentage point to 4.4%.

Wage pressures remain elevated, with average earnings including bonuses accelerating from 5.5% yoy to 6.0% yoy, and earnings excluding bonuses rising from 5.6% yoy to 5.9% yoy.

Full UK labour market overview release here.

In focus today

Today, markets eagerly await US and Russian officials meeting in Saudi Arabia for peace talks initiated by US President Donald Trump last week. The negotiation does not include Ukraine and Ukrainian President Zelensky has stated that any negotiations about Ukraine without its participation would be invalid.

On the data front, the German ZEW index for February is released. In January, we got a positive surprise as the assessment of the current economic situation increased after six months of decline. It will be interesting to see if this rebound, which was also reflected in the PMI and Ifo, persisted into February.

This morning in the UK, we get the labour market report for December/January. Wage growth remains a key input factor for the BoE and private sector wage growth showed a pick-up last month. On the other hand, the labour market continues its gradual loosening with labour demand cooling.

Meanwhile in Sweden, today's focus is on the detailed CPI report for January (08.00 CET). The flash inflation reading turned out much higher than we, the market and the Riksbank had expected. The big surprise was on underlying inflation (CPIF ex energy), which could be a worrying sign of a broader inflation pressure. The details will bring important information on the implications for inflation throughout 2025 as well as the implications for the Riksbank.

Economic and market news

What happened overnight

In Australia, the Reserve Bank of Australia lowered the cash rate target by 25bp to 4.1% as expected. This was the first rate cut since 2020 with the Board remaining cautious on further policy easing. Inflation is moderating and outlook remains uncertain.

What happened yesterday

In Europe, crisis talks in Paris among European leaders underscored the commitment to increase security and a peace through strength approach to safeguarding Ukraine. However, cooperation with Washington remains crucial for securing peace. NATO Chief Mark Rutte expressed Europe's readiness to lead in providing security guarantees for Ukraine, while Dutch Prime Minister Dick Schoof emphasized the urgency of supporting Ukraine. Despite the U.S. decision to engage Russia in negotiation without European allies, British Prime Minister Keir Starmer indicated readiness to send peace-keeping troops, contingent on a U.S. security commitment. Meanwhile European defence shares hit new highs amid expectations of increased defence spending and Denmark is considering a DKK 50bn fund to scale up Danish defence this and next year.

In Sweden, the monthly labour force survey is due at 08.00 CET. We expect to see a stabilization of the current weak labour market, but without any marked improvement in the unemployment figure. Such an outcome would be in line with last week's PES report that showed an unchanged unemployment rate and a return of layoffs to their historical average after being at elevated levels in early autumn.

Equities: Equities inched higher yesterday, but in thin volumes as US was closed for holiday. European markets added another 0.5%, thereby reaching the eighth all-time high this year. Defence stocks surged for a second day with Swedish SAAB jumping a full 16% (30% in a week!). A defence rally but not a defensive one, as cyclicals generally beat defensives, growth/quality beating value but small caps lagging. VIX however worth noting, snapping the improvement from last week by rising this morning. Nonetheless, US futures are slightly higher this morning.

FI: The main story in the European fixed income market is the increase public spending on defence and aid to Ukraine. EU is looking into various options to fund the increased spending through either joint financing or suspending the EU fiscal rules like we saw during the Covid-19 crisis. The response in the bond market was higher yields across the EGBs, but with tighter spreads between periphery and semi-core EGBs relative to core EGBs. Hence, we are not seeing much flight-to-quality despite the higher rates and the pressure on fiscal policy, which would normally result in a wider BTPS-Bund spread and OAT-Bund spread.

FX: The JPY was the clear outperformer in the G10 space in a relatively quiet start to the week, as Japan's economy grew much stronger than expected in Q4 2024. With US markets closed for Presidents Day, EUR/USD remained steady just below 1.05. USD/CAD has stabilized just below 1.42 over the past couple of sessions - today, the focus in CAD FX turns to the January inflation figures at 14:30 CET. EUR/GBP declined toward the 0.8300 mark during yesterday's session. The Riksbank's announcement that it will smooth an EU payment of SEK 7.9bn over two months should have a negligible market impact. EUR/SEK dropped below 11.22, while EUR/NOK fell below 11.64.