CAD flows: CAD looks vulnerable

The USD is slightly firmer against the EUR and AUD overnight, but conditions remain quiet. USD/CAD is little changed despite the uncertainty around tariffs and the recent indication from Trump that they would be imposed as planned next week. As it stands, USD/CAD continues to look a little low relative to current yield spreads, and it is clear that the current Canadian yield structure doesn’t allow for a 25% tariff being introduced by the US next week. As BoC governor Macklem has indicated, such a policy would likely trigger a recession, and would suggest USD/CAD should be higher rather than lower than the level suggested by current yield spreads. The CAD has even outperformed the AUD and NZD in recent sessions, which looks strange given the tariff threat falling disproportionately on Canada. The market will be on watch for any comments on tariffs ahead of the weekend, but the CAD looks vulnerable both against the USD and on the crosses.