The Canadian Dollar continued to struggle against its US counterpart this week due to an array of circumstances that are widely outside of its control. The Loonie was hit hard due to the continuing lack of developments with the North American Trade Agreement negotiations, Trump’s new tariff announcements and Canada’s Q4 GDP which saw growth miss expectations.
Whilst much of the focus on developments and news surrounding redrafting NAFTA have continually been overshadowed by an attention seeking Trump playing the victim, it is understood that negotiators remain resolute on reshaping the accord.
Key personnel from the negotiation teams of Mexico, Canada and the US are trying best to remain focused and essentially ignore the petulant President, instead focusing on the objectives in hand. The objectives rather than being orders from Trump are positions of the government.
The US auto trade content still remains unresolved. Talks over this point were halted as the US official covering this point returned to Washington in order to consult further. It is however understood that talks between trade negotiators are to recommence next week.
Whilst trade officials have recently concluded another chapter relating to regulatory practices a few more remain outstanding. The regulatory practices approved so far include anti-corruption measures, rules for small to medium-sized businesses and competition.
Other key aspects of the treaty which remain somewhat contentious include, access to US procurement deals, and proposed dispute resolution mechanisms and a 5-year conclusion clause to allow parties to abandon the treaty if nations wish to not pursue it.
Trump announced this week that the he will be proceeding with levies on Steel and aluminium. The president who is expected to create a bill next week in order to place 25% tariffs on Steel and 10% aluminium could prove of great detriment to Canada. Canada currently exports 90% of its steel to the US and accounts for 41% of the USA aluminium imports.
Whilst experts don’t see Trump’s plans having a huge impact on NAFTA talks the tension will be palpable Trump’s decision doing nothing to assist the official’s positions.
A day after the announcement of Trump’s tariff plans Canada released its latest monthly GDP figures. The figure which was forecast to demonstrate 0.1% growth reached its target essentially condemning the Canadian Dollar to further loses. The reading of 0.1% attributed to a terrible quarter in which growth grew at an annualised rate of 1.7% short of the Bank of Canadas 2% demonstrating relenting economical growth. The easing of Canadian growth is due to Canadian households curbing spending.
Crude oil prices were also affected by Trump’s tariff plans and crude prices fell on Friday. Crude oil prices for delivery in April fell to USD 60.75 a decline of USD0.24 as investors became fearful that the Trumps plans could spark a trade war.
The cocktail of weaker GDP figures, slow and interrupted NAFTA developments and Trump’s appetite for a trade war have put considerable pressure on the Canadian Dollar this year with CAD depreciating by 2.5% against the US Dollar, a currency which has also had its own volatility linked with it indices market.
This week has seen CAD/USD continue to fall against the USD and fell at the fastest rate seen all year this week. The Canadian dollar was the worst performer amongst Bloomberg’s tracked major currencies. Over the week CAD/USD opened at 0.7924 and has tanked before closing at 0.7759.
The Bank of Canada makes their latest interest rate decision on Wednesday. Expectedly with all the continual uncertainty surround the Canadian economy and development of trades wars, experts are all but certain interest rates will remain at 1.25% whilst they also envisage the most likely month of a rate rise will be May.
Despite many economists predicting that the US could feel the more negative effects of Trumps new tariff plans in the longer term, in the short term the USD has gained significantly against the Canadian Dollar. Currently, USD/CAD is testing the 1.29 level where its finding solid resistance.
Economists expect the pair to depreciate due to this resistance if however, the pair can exceed 1.30 the next medium-term marker will be 1.35. Especially if oil prices continue to weaken.