Today the Bank of Canada kept interest rates unchanged, and in light of the recent comments by Mr. Trump in regard to steel tariffs, this has left the BoC in a holding pattern in the short term. It continues to reiterate that the Canadian economy although good, is still fragile and currently under the influence of trade protectionism and the renegotiation of the NAFTA accord. As long as this uncertainty remains, the BoC will stay with its current mandate, however, once this dies down, be prepared for rate hikes in the future, just not now.
USDCAD 1.2948, 1.2888, 1.2875 1.2990, 1.2993, 1.30016
USD-CAD has now rallied in five of the last six weeks, clocking a peak of 1.3001 earlier in the week, which by our data is the highest level seen since late June last year. In light of the resignation of Trump’s top economic advisor, who is an advocate of free global trading, the Canadian dollar is likely to see further underperformance as the Trump administration is looking committed to trade protectionism. Canada is the number 1 exporter of steel to the U.S. (although Canada runs an overall trade surplus with its southern neighbour). Rekindled Fed policy expectations remains in the mix, too, even though Fed chairman Powell’s testimony before the Senate last Thursday saw him walk back some of the hawkish notes he struck at his House testimony earlier in the week. Incoming Canadian data, meanwhile, has maintained the strong case for no change from the BoC until July. We see a 25 basis point rate hike to 1.50% in July, followed by a 25 boost to 1.75% in October. We advise trend following USD-CAD. The pair’s technical bull trend credentials, in evolution since early February, are strong, both by Dow theory’s higher highs and higher lows yardstick and by a rising RSI momentum indicator (14 day), although the indicator has over the last day or so started to flash “overbought” (having risen above the 70.0 threshold).