Analysts now fully believe that Canada will not follow the U.S. Federal Reserve in tandem with its interest rate hikes, this week’s Bank of Canada comments have basically erased any chance of that. Also, the NAFTA talks seem to be going nowhere and this is adding further volatility to the CAD. Once the talks have been finalized, expect a knee jerk reaction on the CAD falling back to its pre NAFTA talks level.
USDCAD 1.3055, 1.2955, 1.2948 1.3095, 1.3120, 1.3160
USD-CAD steamed to a nine-month high at 1.3072, extending the run higher from sub-1.2250 levels that were seen in early February. The Canadian dollar has been underperforming amid worries about the NAFTA negotiation and after BoC Governor Poloz said on Tuesday that the unwinding of monetary stimulus would “remain cautious.” Oil prices have also been trading on the softer side. We also anticipate upcoming Canadian data will be consistent with the BoC’s slow-go approach to policy normalization. Manufacturing shipments, up today, are expected to fall 1.0% in January (m/m, sa) after the 0.3% dip in December, with our projection driven by the 2.1% tumble in export values revealed in the January trade report. USD-CAD technically remains in an uptrend, which has been in play since late January. Trend support comes in at 1.2975.
EUR-USD recouped above 1.2300 after dipping yesterday to a four-day low at 1.2295. This extended a decline from levels just above 1.2400. Market participants are fathoming a bout of political news, including the latest reshuffle at the White House (Trump is removing national security advisor, H.R. McMaster, and we don’t yet know who will be the replacement) and news that U.S. special council Mueller has subpoenaed the Trump Organisation for business documents, some of which are related to Russia. Investors are additionally trying to fathom the risk of a Trumpian trade war. In the bigger view of EUR-USD, the pair remains mired at midway levels of a range that’s been seen since late January, which marks a consolidative phase after rallying out of sub-1.1600 levels that were seen last November. More of the same looks likely for now. Support is at 1.2275.