"It wasn’t looking good for the Canadian dollar on Friday morning.” Said Rahim Madhavji, President of KnightsbridgeFX.com, a Canadian currency exchange company that helps Canadians get better exchange rates than the banks. The U.S. released very robust, better-than-
expected non-farm employment numbers and traders sold Canadian dollars.
USD/CAD jumped from $1.2950 and pushed above resistance in the $1.2990-$1.3000 area. Then profit-takers got into the fray. USD/CAD was $1.2820 a week earlier, giving patient traders a tidy profit.
The weekend was only hours away, and the G7 Finance Ministers were meeting in Whistler, British Columbia. Although there was only a very slim chance that the G7 would issue a market moving statement, traders still used it as an excuse to trim positions.
Italian political uncertainty had fostered an aura of risk aversion on Friday which led to broad U.S. dollar gains which put downward pressure on the Canadian dollar. The G7 Finance Ministers issued a statement on Saturday, taking the unusual step of criticizing the United States for its trade practices, saying “Concerns were expressed that the tariffs imposed by the United States on its friends and allies, on the grounds of national security, undermine open trade and confidence in the global economy. Finance Ministers and Central Bank Governors requested that the United States Secretary of the Treasury communicate their unanimous concern and disappointment.” The statement did not have any effect on the Canadian dollar or FX in general.
The Canadian dollar rode a large wave of U.S. dollar selling overnight but the USD/CAD decline stalled at support in the 1.2890-1.2910 area.
The Canadian dollar is caught between a rock and a hard place. Canadian dollar sellers are concerned about the impact on Canada if North American Free Trade Agreement talks collapse. The U.S. dollar is once again threatening to levy tariffs on steel and aluminum imports.
Two weeks ago, President Trump added the risk of 25% tariffs on car imports. On the weekend, the President was taking shots at Canada’s agricultural and forest industries.
The Bank of Canada doesn’t appear to be bothered by these developments. The monetary policy statement acknowledged ongoing uncertainties around trade policies but not only primed the pump for July rate increase, left the door wide open to a second hike later in the year.
It is a big week for Canadian economic data, headlined by Friday’s Canadian employment report. The April report was weak. The unemployment rate was unchanged as was employment. Weather may have played a role. If so, Friday’s report may show "payback" suggesting an upside risk to the 15,000 forecast.
Wednesday’s Canadian Merchandise Trade data may get extra scrutiny due to the ongoing NAFTA talks. Analysts are expecting the Trade deficit to narrow.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians.
