USD/CAD – Canadian dollar falls to 6-week low on NAFTA concerns

The Canadian dollar continues to lose ground this week. In Tuesday’s North American session, USD/CAD is trading at 1.3167, up 0.56% on the day. On the release front, manufacturing data will be in focus on both sides of the border. Canada will release Manufacturing PMI, and the key release in the U.S is ISM Manufacturing PMI. On Wednesday, Canada releases Trade Balance and the Bank of Canada is expected to maintain the benchmark rate at 1.50%.

The markets may have been closed for Labor Day, but the struggling Canadian dollar still lost ground, as global tensions continue to spook investors. The simmering trade dispute between the U.S and China shows no signs of easing and resident Trump has threatened further tariffs worth some $200 billion, which could be imposed as early as this Thursday. So far, the two economic giants have imposed $50 billion in tariffs on each other. Canada and the U.S have already exchanged tariffs on each other’s products, and Canadian and U.S negotiators are scrambling to reach an agreement after a Friday deadline was missed. The U.S and Mexico reached an agreement in August, leaving Canada out in the cold, much to the annoyance of Canadian policymakers. In order to reach a new trade agreement with the U.S, Canada will likely have to make some concessions, such as reducing hefty tariffs which protect the Canadian dairy industry. The uncertainty over NAFTA is weighing on the Canadian dollar, which has lost 1.0% so far this week.

The Bank of Canada releases its monthly rate statement on Wednesday, with policymakers expected to hold rates at 1.50%, after the Bank raised rates by a quarter-point in July. The Bank has hinted that it will raise rates before the end of year, but is unlikely to make a move on Wednesday, given the uncertainty over the NAFTA negotiations with the U.S. Still, with the Federal Reserve likely to raise rates later in September and possibly in December, the BoC will have to make a move or risk watching the wobbly Canadian dollar fall even further.

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USD/CAD Fundamentals

Tuesday (September 4)

• 9:30 Canadian Manufacturing PMI
• 9:45 US Final Manufacturing PMI. Estimate 54.5
• 10:00 US ISM Manufacturing PMI. Estimate 57.6
• 10:00 US Construction Spending. Estimate 0.5%
• 10:00 US ISM Manufacturing Prices.  Estimate 74.0
• Tentative – US IBD/TIPP Economic Optimism. Estimate 57.2
• All Day – US Total Vehicle Sales. Estimate 16.7M

Wednesday (September 5)

• 8:30 Canadian Trade Balance. Estimate -0.8B
• 8:30 Canadian Labor Productivity. Estimate 0.2%
• 10:00 BoC Rate Statement
• 10:00 BoC Overnight Rate. Estimate 1.50%

*All release times are DST

*Key events are in bold

USD/CAD for Tuesday, September 4, 2018

USD/CAD, September 4 at 9:00 DST

Open: 1.3093 High: 1.3179 Low: 1.3090 Close: 1.3175

USD/CAD Technical

USD/CAD continues to break through resistance lines. The pair inched higher in Asian trade and posted considerable gains in the European session. The pair continues to move higher in North American trade

• 1.3160 has switched to a support role following strong gains by USD/CAD on Tuesday
• 1.3292 is the next resistance line
• Current range: 1.3160 to 1.3292

Further levels in both directions:

• Below: 1.3160, 1.3292, 1.2970 and 1.2831
• Above: 1.3292, 1.3386, and 1.3547

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