USD/CAD – Canadian Dollar Dips on NAFTA Worries

USD/CAD has posted slight gains in the Tuesday session, as the pair trades at 1.3260. On the release front, there are no Canadian events on the schedule. In the US, today’s highlight is Existing Home Sales, with the markets bracing for a dip in the December reading. On Wednesday, the US will release Crude Oil Inventories.

Donald Trump has barely warmed his new chair in the Oval Office, but dramatic change is already afoot. On Monday, Trump signed an executive order formally withdrawing the US from the Trans-Pacific Partnership, a broad trade agreement which the US had signed but not ratified. Trump had promised to leave the TPP during the election, arguing that the deal would hurt American workers. Next stop is NAFTA, which Trump has said he will renegotiate with Canada and Mexico. Understandably, Canadian officials are worried about the new US administration’s protectionist stance, and Prime Minister Justin Trudeau and his cabinet are meeting in Calgary to plan the government’s strategy in dealing with Trump. The US is Canada’s largest trade partner and protectionist moves by the US could be devastating to the Canadian economy. However, On Monday, Trump’s senior business adviser, Stephen Schwarzman, said Canada had little cause for concern. Trump’s sights may be set more on Mexico than Canada, as he has threatened to impose tariffs on companies that move production to Mexico. Still, investors will be wary about Trump’s plans regarding NAFTA and these concerns could send the Canadian dollar to lower levels.

As a commodity-based currency, the Canadian dollar is sensitive to changes in oil prices. The recent production agreement between OPEC and other oil producers took effect on January 1, so we could see some volatility in oil prices in the coming weeks and months. Last week, the International Energy Agency predicted a “significant” boost to US output as a result of the OPEC agreement. With some 35 US rigs commencing operations last week, according to Baker Hughes, US oil production continues to climb. This rise in US production is apparent from recent releases of US Crude Inventories, which point to a large surplus in stockpiles. Last week, the indicator recorded a gain of 2.3 million barrels, after a surplus of 4.1 million barrels a week earlier. Both readings were much higher than expected. On Sunday, OPEC announced that 1.5 million barrels had been taken out of the market, out of 1.8 million agreed to under the recent production agreement between OPEC and other oil exporters. Still, if US production continues to rise and offsets the cutbacks announced by OPEC, oil prices could reverse directions and head lower.

USD/CAD Fundamentals

Tuesday (January 24)

• 9:45 US Flash Manufacturing PMI. Estimate 54.6
• 10:00 US Existing Home Sales. Estimate 5.54M
• 10:00 US Richmond Manufacturing Index. Estimate 7

Wednesday (January 25)

10:30 US Crude Oil Inventories

*All release times are GMT

*Key events are in bold

USD/CAD for Tuesday, January 24, 2017

USD/CAD January 24 at 8:35 EST

Open: 1.3237 High: 1.3298 Low: 1.3210 Close: 1.3258

USD/CAD Technical

• USD/CAD was flat in the Asian session and has posted slight gains in European trade
• 1.3253 is a weak support level
• 1.3371 is the next resistance line

Further levels in both directions:

• Below: 1.3253, 1.3120, 1.3003 and 1.2922
• Above: 1.3371, 1.3457 and 1.3599
• Current range: 1.3253 to 1.3371

OANDA’s Open Positions Ratio

USD/CAD ratio is unchanged in the Tuesday session. Currently, long positions have a slight majority (52%), indicative of trader bias towards USD/CAD moving to higher levels.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.