The Bank of Canada cut its Overnight Rate yesterday to 2.75%, with Governor Mecklem warning on the potentially severe impact of new US tariffs.

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1. The US-centered trade war rumbles on, and the Bank of Canada’s policy meeting yesterday was preoccupied with it. The Bank cut its overnight rate for the seventh consecutive meeting, as expected, by 0.25% from 3.00% to 2.75%. Governor Mecklem gave a strong warning of the potentially “severe” impact of new US tariffs, and the fluid situation. “Depending on the extent and duration of new U.S. tariffs, the economic impact could be severe,” said Macklem. The meeting had little effect on the Canadian Dollar.
2. US CPI (inflation) data released yesterday came in slightly lower than expected, showing a month-on-month increase of only 0.2%, giving an annualized rate of 2.7%. Rates of 0.3% and 2.8% were widely expected. The data gave stock markets, especially in the USA, a small boost, but the boost has proven to be short-lived, with prices of major US indices falling towards their recent lows. Both the S&P 500 Index and the NASDAQ 100 Index again closed well below their 200-day simple moving averages yesterday.
3. Most analysts are expecting the Bank of Japan not to hike rates at its policy meeting next week, with a 0.25% hike in Q3 2025 seen as the most likely outcome. The Yen has more or less halted its recent strong advance or at least run out of bearish momentum.
4. In the Forex market, the Japanese Yen has been the strongest major currency since today’s Tokyo open, while the Australian Dollar has been the weakest, putting the AUD/JPY currency cross in focus. The USD/JPY currency pair is also in focus, as if it closes below ¥147.26 there will be a valid long-term trend trade entry on the short side.
5. Gold is holding up very well, currently trading only $10 off its long-term high above $2,952.
6. There are two high-impact data releases scheduled for today in the USA: PPI (this is an important inflation metric, so if the month-on-month change is not 0.2%, it will be noted) and unemployment claims

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