Two items dominate the Canadian dollar, one, the U.S. has indicated that it is open to talks with North Korea on possible denuclearization, two, NAFTA talks have traders expecting no rate hikes in Canada this year.
Kim Jong-Un has given his envoys the authority to state that North Korea would like to negotiate the suspension of nuclear weapons and restart normal relations and with South Korea and the U.S. The White House has given a green light to start.
The recent NAFTA talks that ended this week are now intertwined with Trump’s steel and aluminum tariffs, and until this is removed this will leave the Canadian dollar in a volatile state in the near term.
USDCAD 1.2888, 1.2873, 1.2867 1.2920, 1.2980, 1.2993
USD-CAD has now rallied in five of the last six weeks, yesterday clocking a peak of 1.3001, which by our data is the highest level seen since late June last year. Trump’s proposed tariffs are a negative for the Canadian dollar, with Canada being 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). Support comes in at 1.2913-15.