USD/CAD – Canadian dollar under pressure over NAFTA concerns, BoC statement next

The Canadian dollar has posted slight losses in the Wednesday session, after dropping sharply on Tuesday. Currently, USD/CAD is trading at 1.3178 down 0.08% on the day. On the release front, Canada releases Trade Balance and the Bank of Canada is expected to maintain the benchmark rate at 1.50%. In the U.S., the sole event is Trade Balance. On Thursday, the U.S releases ADP nonfarm payrolls, unemployment claims and the ISM Non-Manufacturing PMI.

It’s been a tough week for the Canadian dollar, which managed to lose ground on Labor Day, even though U.S and Canadian markets were closed. The currency has dropped 1.0% this week, as concerns over NAFTA are weighing heavily on the Canadian dollar. 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. 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. Prime Minister Justin Trudeau has said that no deal is better than a bad deal, but it’s clear that Canada can ill-afford to remain the odd man out, with some 75% of Canadian exports destined for the U.S.

The Bank of Canada releases its monthly rate statement later 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 – otherwise, there is a risk that business investment in Canada will decline. As well, the Canadian dollar would likely lose ground, as the increase in interest rates in the U.S would make the greenback more attractive to investors.

Markets edge lower as NAFTA talks resume

I’m interested but not worried, oddly enough

BoC can wait, but could still hike rates today

USD/CAD Fundamentals

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%
• 8:30 US Trade Balance. Estimate -50.2B

Thursday (September 6)

• 8:15 US ADP Nonfarm Employment Change. Estimate 195K
• 8:30 US Unemployment Claims. Estimate 214K
• 10:00 US ISM Non-Manufacturing PMI. Estimate 56.8

*All release times are DST

*Key events are in bold

USD/CAD for Wednesday, September 5, 2018

USD/CAD, September 5 at 8:15 DST

Open: 1.3189 High: 1.3206 Low: 1.3164 Close: 1.3178

USD/CAD Technical

USD/CAD was flat in Asian trade and is showing limited movement in the European session

• 1.3160 is a weak support level
• 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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