The Canadian dollar underperformed against its G-10 peers overnight due to renewed trade tensions between the U.S. and Canada.
The Trump administration tore up the North American Free Trade Agreement (NAFTA) in 2018 and replaced it with the U.S.-Mexico-Canada Agreement (USMCA) on trade. All parties ratified the deal by March 2020. It appears the Americans are still not happy.
On May 21, the Americans announced they were raising tariffs on imports of Canadian lumber from 9.0% to 18.0%. The Americans believe Canadian foresters receive unfair government subsidies as most harvested lumber comes from Crown-owned land.
The Americans upped the trade tensions again yesterday. They are accusing Canada of denying American dairy producers’ fair access to the Canadian market. They believe that Canada’s dairy quota system denies Americans their fair share of the Canadian market.
Global investors have taken note. The Canadian dollar lost ground against the U.S. dollar while its commodity currency cousins’ the Australian and New Zealand dollars rallied.
The New Zealand dollar was the big mover overnight. It gained 1.7% against the U.S. dollar after the Reserve Bank of New Zealand turned hawkish.
The RBNZ left interest rates unchanged but brought forward the timing of the next interest rate increase. It adopted a series of Overnight Cash Rate (OCR) forecasts that indicated New Zealand interest rates would start rising in H@ 2022. The bank also skipped mentioning the value of the currency. NZD/USD soared to $0.7315 from $0.7224.
AUD/USD rallied as well, climbing from $0.7750-$0.7795, supported by modestly better than expected economic data and broad U.S. dollar weakness.
EUR/USD, GBP/USD, and JPY traded quietly inside yesterday’s ranges, with traders awaiting fresh guidance to determine direction.
There are not any economic data reports of note today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
