Canada has been lumped in with the rest of the world’s steel and aluminum producers and President Trump has stated that Canada will only be removed once a “ fair and equitable NAFTA agreement has been signed”. Since that will take some time for that to happen, the Canadian dollar will be left swinging in the wind.
Oil prices have moved slightly higher, reports of declining stockpiles in Cushing, Oklahoma, has resulted in a $1.32 USD a barrel hike, up 2.16%.
Expect more volatility, however, it seems that most of the bad news is out of the way for the Canadian dollar in the near term.
USDCAD 1.2885, 1.2874, 1.2866 1.2990, 1.3015, 1.3025
USD-CAD logged a fresh two-month high at 1.2916. Trump’s 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. The latest round of NAFTA talks wrap up today in Mexico will be dominated by the tariffs issue. We advise trend following USD-CAD for now. 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), which is strengthening while still being short of “overbought” levels. Support comes in at 1.2865-67.
The euro has been underperforming as markets digest the Italian election results, which has seen Eurosceptic parties come to the prominence, with the centre-right La Liga poised to lead a new government, assuming it can form sufficient parties to bolster the centre-right alliance (having ruled out forming any “bizarre” coalitions). La Lega’s leader, Matteo Salvi, said that he still thinks the euro is a “bad” currency, which will come to an eventual end, but also stated that holding a referendum on it would be “unthinkable” and that financial markets “have nothing to fear.” The euro has posted losses versus the dollar, yen and most other currencies, though the declines have been nothing more than moderate. EUR-USD has gravitated around 1.2300, earlier basing at a low of 1.2268, which left Friday’s low at 1.2251 untroubled. The pair remains comfortably above last week’s low at 1.2154. EUR-JPY, meanwhile, clocked a five-week low before rebounding some. In Germany, the results of the SPD postal ballot found members endorsing the party forming a new grand coalition, with Merkel remaining as Chancellor. We retain a bearish view of EUR-USD, with recent price action, despite last week’s rebound from sub-1.2200 lows, consistent with the bear phase that’s been in evolution over the last two weeks. Resistance comes in at 1.2355-60.