EUR/USD, USD/CAD flows: US shutdown and tariff risks
The USD remains under pressure with EUR/USD breaking above 1.19 despite a healthy durable goods orders report and a significantly less negative Dallas Fed manufacturing survey, with US politics, in particular the growing risk of a government shutdown, weighing.
After the recent shootings of demonstrators in Minneapolis, Democrats are refusing to fund the Department of Homeland Security, which could lead to a government shutdown starting at the end of this week. If Republicans refuse to exclude the DHS from a funding bill, then other departments would shut down. This would include the Labor Dep’t, which releases inflation and employment data, but not the Commerce Dep’t, which releases GDP amongst other releases, and has already had its funding approved. Should a shutdown be seen, it could, like the recent one, last for several weeks.
The CAD is underperforming somewhat after Trump threatened 100% tariffs. Trump seems to be more irritated by Canadian PM Carney’s Davos speech which was clearly aimed at the US under Trump than a recent Canada-China trade deal, which reduced some tariffs on each side but does not grant Chinese goods a back door into the US. Given Trump’s climbdown over proposed tariffs on Europe over Greenland it looks unlikely that he would impose such aggressive tariffs on Canada for very long, if at all. The tensions between the US and Canada are an economic risk particularly to Canada with the USMCA trade deal due to be renegotiated this year.