Oil prices are basically unchanged, Canada’s economic data came in as expected or better, however, it seems that the NAFTA talks are starting to take front and centre. Morgan Stanley believes that the Mexican peso is at the greatest risk of being the biggest loser if the talks fail with Canada being impacted to a lesser degree. The one thing that all three parties can agree on, is that the deal won’t be ready any time soon. The U.S. has come out stating that there still significant outstanding differences, even though Canada’s Prime Minister said there would be an agreement soon. In the meantime expect further volatility, currencies will move on what the next politician says.
USDCAD 1.2866, 1.2858,1.2850 1.2895, 1.2900, 1.2905
USD-CAD has been orbiting the 1.2800 level for over a week now. The recent ramp up in U.S. yields has been a support on the one hand, while the concurrent ramp up in oil prices have been a downward driver on the other hand, which have accounted for a choppy but net directionless price action. We expect more of the same. Support comes in at 1.2729-30. Today brings some top tier data out of Canada, with both April CPI and March retail sales data due. We expect headline CPI at 2.3% y/y, which would match the March rate. The BoC has indicated comfort with the elevated inflation rates, which has been above the 2.0% target mid-point since February, which policymakers have put down to temporary factors. As for retail sales, we expect a rise of 0.2% m/m. In-line outcomes shouldn’t have a material impact on the Canadian dollar.
EUR-USD ebbed back under 1.1800 as market participants cast a wary eye on political developments in Italy, though Wednesday’s five-month low at 1.1763 remained untroubled. The 10-year U.S. T-note yield also touched a new seven-year high above 3.11%, before backing to around 3.10%. We retain a bearish view of EUR-USD. The surge in U.S. yields should keep the dollar a buy-on-dips trade, while the political evolutions in Italy, involving the anti-establishment Five Star Movement (which favours a whole array of policies, including “de-growth”) looks likely to continue to stress market sentiment about the Eurozone. EUR-USD is in what is now its fifth consecutive weekly decline. Resistance is at 1.1845.