USD/CAD Soars After Saudi Arabia Freezes Trade With Canada
Talking Points for USD/CAD:
- Canadian Dollar fell against its US counterpart early into Monday’s trading session
- Hawkish BoC and increasing inflation helped the Loonie pare its losses
- Housing and employment data releases later in the week may fuel downside momentum
See our 3Q forecasts for currencies like the Canadian Dollar in the DailyFX Trading Guides page
The Canadian Dollar started Monday’s trading session sharply lower against its US counterpart after news of Saudi Arabia expelling the Canadian ambassador crossed wires. The Saudi Press Agency, the nation’s official news outlet, also announced that the country would freeze all new trade and investment deals with Canada. This move comes after Canadian Foreign Minister Chrystia Freeland urged Saudi authorities over Twitter to release human rights activists from prison.
However, the currency pair’s upside momentum reversed throughout the Asia/Pacific trading hours. Negative impacts of the Saudi Arabian investment and trade embargo may be overshadowed by Canada’s higher inflation and better than expected economic growth. The BoC, which recently raised rates to 1.5% at their July meeting, has been increasingly hawkish and alluded to more increases this year.
USD/CAD 5-Minute Chart
Looking ahead, the Loonie faces the release of important housing and employment data later this week. Although local unemployment rate is forecasted to decrease to 5.9% from the previous 6.0%, July’s net change in employment is expected to lower to 19.0k as opposed to June’s 31.8k. Monthly building permits are also expected to decrease by 1.2%, falling from 4.7% prior. These tempered expectations of Canadian economic growth, combined with economists’ forecasts of 2.9% for July’s y/y US CPI, could cause USD/CAD to surge in the coming days.
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--- Written by Megha Torpunuri, DailyFX Research Team
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.