OIL: Supply & Demand Uncertainty Is Reducing Market Volatility

• CANADA SAYS ABSOLUTELY READY TO RESPOND TO ANY TRUMP TARIFFS
• CANADA SAYS TARIFFS WOULD BE MISTAKE, COSTING JOBS, INFLATION

AUDUSD fell sharply to 0.6209 following US President Trump’s statement that he thinks a 25% tariff on imports from Canada and Mexico will be enacted from February 1. The pair has recovered somewhat to 0.6248 to be down 0.4% today and still lower than the intraday high of 0.6289. Following Monday’s rally though, it is still up 1% on Friday. The USD jumped on the tariff announcement and is currently up 0.3%.

• The risk-averse yen has outperformed today leaving AUDJPY down 0.8% at 96.91 after a low of 96.83. Aussie is moderately lower against other majors with AUDNZD down 0.1% to 1.1047, AUDEUR -0.1% to 0.6016 and AUDGBP -0.2% to 0.5082.
• USDCAD fell sharply following the tariff news and is down 0.8% to 1.4419 leaving AUDCAD 0.4% higher at 0.9013.
• Equities are generally higher with the ASX up 0.7%, Hang Seng +1.0% and S&P e-mini +0.2%. Oil prices are lower with WTI down 0.7% to $76.83/bbl. Copper is down 1.5% and iron ore up to around $105/t (February contract).
• Later US January Philly Fed non-manufacturing, UK labour market, euro area/German ZEW and Canada’s December CPI data are released. The euro area ECOFIN meeting takes place.

The issuance of 40-year bonds today was met with strong demand, with the actual high yield coming in notably below dealer expectations. According to a Bloomberg poll, the anticipated yield was 2.60%, compared to the realized yield of 2.57%.

• The auction’s cover ratio also improved, rising to 2.7518x from 2.2364x in the previous outing.
• As highlighted in the auction preview, today’s yield was approximately 15-20bps higher than November’s yet remained 10bps below the cyclical high of 2.815% reached earlier this month. Additionally, the 20/40-year yield curve had steepened by 5-10bps since the last auction, reaching its steepest level since at least 2008.
• The 40-year bond is 2-3bps richer from pre-auction levels in early afternoon trading.
• In early afternoon trading, the 40-year bond is trading 2-3bps richer than pre-auction levels.