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Canadian Dollar Has Asymmetric Risk with Trump’s Reflationary Views

Canadian Dollar Has Asymmetric Risk with Trump’s Reflationary Views

2016-11-11 22:56:00
Tyler Yell, CMT, Currency Strategist
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The Canadian Dollar

CAD/USD NY Spot Close 1.35334

Canadian Dollar Has Asymmetric Risk with Trump’s Reflationary Views

Fundamental Forecast for CAD: Bearish

  • Trump Trade Plan And Its Effects on CAD In Focus Ahead of Inauguration
  • Canadian Dollar hits lowest levels since March
  • If you’re looking for trading ideas, check out our Trading Guides.

The Canadian Dollar traded as low as 1.3547 on Friday, hitting its lowest levels since March. This week brought the improbable event of the non-politician Real Estate Magnate, Donald Trump being elected President of the United States. President-Elect Trump ran on a platform of renegotiating trade agreements that did not benefit the United States as he saw fit. The tearing up of the contracts is particularly concerning for Canada who has $295M of exports in 2015 to the United States under the current trade agreement of NAFTA (North American Free Trade Agreement.)

The second largest receiver of Canadian exports is China with $18.5M. Therefore, any renegotiation that limits the amount of trade Canada does with the US, which is still speculation at this point, would be a large hit to the Canadian economy which has focused on Exports.

From a Trade Perspective, Nothing Comes Close To Canadian Exports to U.S.

Canadian Dollar Has Asymmetric Risk with Trump’s Reflationary Views

Data Source: Bloomberg

Some institutions have called the Donald Trump impending administration a new era because of his Fiscal Stimulus agenda aligned with a Republican Congress that will allow him to pass far more than he could have in a deadlocked in Congress. The importance of the new-era is what that could do for inflation in the United States, which has been seenat the long end of the UST Yield Curve. On Wednesday, the UST 10Yr yield had its largest intraday range, which was indicative of inflation concerns.

When combining the Trump election with Brexit, there appears to be a democratic trend towards nationalism that could continue to feed the USD Bulls and US Treasury Bears. Continue to keep an eye on the price of Crude Oil because of the inability for Crude Oil to push higher as more trade pressures are placed on OPEC to come to an agreement to cut production.

Where are financial markets heading into the fourth quarter? See our forecast and find out!

Economic Data on Deck for Canada This Week

The main economic data point for the week ahead is Friday’s CPI, which is expected to rise above the prior reading of 1.3% to 1.5% YoY. Outside of Tier-1 data points, Wednesday’s Manufacturing Sales MoM for September is expected to decline from a prior reading of 0.9% to 0.1%.

Technical & Macro Outlook: Friday’s run higher in USD/CAD took us toward the recent focal point of resistance of the 50% Fibonacci retracement level from January highs to May lows at 1.3575. The next key Fibonacci zone in focus is the 61.8% retracement at 1.3838.

Read Our Recent USD/CAD Technical Note Here

Canada will continue to look for ways to reverse the Trade Balance trend, and one positive note was the China would begin trading CNY direct with Canada on November 14. Canadian PM Trudeau along with others was quick to reach out to Trump and congratulate him as well as communicate his openness to NAFTA renegotiations, which seem inevitable.

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