To say that the USDCAD has been volatile is an understatement, today Canada’s GDP numbers were less than expected, but the unpredictability has been the White House. The Trump administration announced it’s imposing tariffs on steel and aluminum coming from the EU, Canada and Mexico. Trump is unhappy with the pace of the NAFTA talks and is using this as tool to speed up the process. Trump is also considering tariffs on another $50 billion worth of Chinese goods, fears of a global protectionist trade war are gaining.
The Canadian consumer looks like they are getting tired as the GDP numbers came in at their slowest level in two years. The CAD fell on this news even as the Bank of Canada had indicated yesterday that the Canadian economy was moving nicely and that rate hikes on the horizon. The CAD fell even more on the back of the tariff announcements.
Expect uncertainty for the near term.
USDCAD 1.2955, 1.2905, 1.2895 1.2981, 1.2993, 1.3028
USD-CAD dove sharply from levels above 1.3000 to a three-day low of 1.2835 yesterday, since settling around the 1.2870 mark. The losses came in the wake of the BoC policy announcement, which left the cash rate at 1.25% while laying the groundwork for a 25 rate hike in July. The BoC stated that “higher interest rates will be warranted over time to keep inflation near target.” In April, they tempered that view by adding “some monetary policy accommodation will still be needed to keep inflation on target,” which is absent in yesterday’s statement, which sparked buying of Canadian dollars. The BoC still assured markets that the central bank will proceed with “a gradual approach to policy adjustments” that is guided by the data, and noted uncertainties about trade, which has been “damping global business investment.” The Washington Post has also reported that President Trump will announce tariffs on imports of Canadian steel and aluminium (in addition to Mexican and EU imports). We expect USD-CAD to hold firmer for now. Support is at 1.2860.
EUR-USD carved out a fresh rebound peak of 1.1724, extending the lift-out of the 10-month low that was seen at 1.1510 on Tuesday. A spike in Eurozone HICP to 1.9% y/y from 1.4% gave the euro some vim. EUR-USD’s high this week, which was seen on Monday, is at 1.1728. The pair would need to hold above 1.1649-50 through to tomorrow’s close to mark this the first weekly gain out of the last seven weeks. Whether this is achieved may well depend on what happens in Italy, and whether Five Star Movement and the Lega can form a government, and whether proposed policies would be sufficiently market-friendly to keep the wolves from the door. Market participants will also been maintaining a weather eye on the expected tariffing of EU steel and aluminium exports to the U.S. EUR-USD has resistance is at 1.1728-1.1733, which encompass highs that were seen over the last week. Support comes in at 1.1608-10.