Canadian Dollar Under Pressure on NAFTA, Easier Oil Prices

Talking Points

- The US Dollar has been strengthening against its Canadian cousin since September 8.

- That trend has now halted but could well resume amid fractious NAFTA negotiations and weaker oil prices.

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The past month has not been kind to the Canadian Dollar and, despite a respite over the last few days, the currency could yet weaken further as NAFTA talks stall and crude oil prices ease back.

Canadian Prime Minister Justin Trudeau has been in Washington to meet US President Donald Trump, who wants substantial changes to the North American Free Trade Agreement between the US, Canada and Mexico. Trudeau said he was still optimistic about modernizing the trade deal and the Canadian Dollar has stabilized over the last few sessions, helped by a weaker greenback.

Chart: USD/CAD Hourly Timeframe (September 7 – October 12, 2017)

Chart by IG

However, the negotiations could easily fail, and that is likely to be bad news for both the Mexican Peso and the Canadian Dollar. In addition, both currencies are highly correlated with the price of crude oil, which is currently slipping back.

Chart: US Crude Oil Hourly Timeframe (September 28 – October 12, 2017)

Chart by IG

Oil prices have suffered from data released late Wednesday by the American Petroleum Institute (API) showing a surprise build in US crude inventories and gained little from a report by the International Energy Agency, released Thursday, suggesting the global oil market will be in balance next year despite rising output.

Crude has also failed to benefit from Trump’s likely move to decertify the international deal to curb Iran’s nuclear program; a decision that could make it more difficult for Iran to produce and sell its oil. That suggests underlying weakness that could well rub off on both the Peso and the Canadian Dollar.

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

Follow Martin on Twitter @MartinSEssex

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