MACRO ANALYSIS: MNI U.S. Macro Weekly: Tariffs Take A Toll On Sentiment

• +50,000 TYH5 102 puts 1 ref 108-18. Total volume in the OTM put only 2,900 coming into the session.

We’ve updated our Hawk-Dove Spectrum for 2025, with the rotation of regional president voters bringing in Chicago Fed’s Goolsbee (dove), KC’s Schmid (hawk), St Louis’s Musalem (hawk), and Boston’s Collins (neutral/dove) for 2024. (Out are the neutral/hawkish Bostic and Barkin, hawk Hammack, and neutral/dovish Daly).

• All participants remain on the dovish side of the Hawk-Dove line in absolute terms, reflecting the Committee’s overall easing bias.
• However most of the Dots have been moved in a more hawkish direction in the last 6 weeks, in light of the more limited cuts seen in the December Dot Plot and the growing sentiment that the FOMC can remain patient in deciding when to cut next.
• We now regard Hammack as the FOMC’s biggest hawk, though only marginally over her colleagues Bowman, Schmid and Musalem.
• Conversely, Gov Waller has ensconced himself as one of the pre-eminent doves on the Committee, seeing potential for 3-4 cuts this year, and possibly restarting the easing cycle earlier than market pricing implies (though he spoke after the December CPI data).

• CIBC: Full 25% tariffs look unlikely. They see USDCAD peaking at 1.461 and 1.468 with 10% tariffs or 1.478 and 1.496 with 20% tariffs under carve-outs for both energy and auto sectors or just for energy sectors.
• “The market implied probability of spot moving above 1.4610 by Q2 is just over 20%; above 1.4960 is just over 10%. This implies that while high-stake tariffs are not expected to be the base case, the market has assigned a larger-than-zero chance that they can happen.”
• DB: In a full 25% tariff scenario with no fiscal response, USDCAD should move to “at least 1.53, with a very real possibility that it tests the 2002 all-time highs of 1.61. By extension, USD/CAD is one of the most under-priced FX crosses for an FX trade war.”
• ING: “USD/CAD has been flat since the start of the year, and still embedding a 3% risk premium associated with the risk of Trump’s tariffs – according to our short-term fair value model. Even if unilateral 25% tariffs on Canada don’t materialise, smaller universal tariffs would still asymmetrically damage the economy of the main US trade partners. […] To rebound at this stage, CAD requires more reports suggesting a lighter-touch approach by Trump on trade. Barring that, we expect the risk premium to linger and some support around 1.430 in USD/CAD.”
• JPM: “1.55-1.58 is consistent with full pass-through from our USD tariffs beta [with permanent tariffs and no carve-outs]. […] But those elevated USD/CAD targets could prove temporary” if negative spillover back to the US impacts the USD leg, “providing some eventual offset to higher USD/CAD estimates.”
• “USD/CAD sub-1.40 is possible if no tariffs are ultimately introduced, risk premium is depriced, CAD shorts are trimmed, and less trade uncertainty allows other improving domestic factors to boost CAD.”
• MUFG: “If there’s no sign of negotiations or progress in negotiations and Trump keeps repeating his plans, we will see USD/CAD and USD/MXN jump notably higher. Our USD/CAD forecasts for Q1 and Q2 (1.4500 & 1.4400) did not incorporate a broad-based 25% tariff. The 2020 high (1.4668) and the 2016 high (1.4690) would likely be taken out quickly and a move into a 1.5000-1.6000 range (last seen in 2003) would come into play.”