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CAD Soars as Canada Ready Key Concession to Reach NAFTA Deal

CAD Soars as Canada Ready Key Concession to Reach NAFTA Deal

2018-09-12 09:00:00
Justin McQueen, Analyst
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CAD Analysis and Talking Points

  • CAD Buoyed on Possible Concession
  • NAFTA Deal to Prompt Aggressive BoC Tightening

CAD Buoyed on Possible Concession

The Canadian Dollar surged after source reports that Canada were said to provide concessions through allowing US farmers access to Canada’s dairy market in order to reach a NAFTA deal. Canada’s protected dairy industry has been one of the major stumbling blocks in NAFTA renegotiations, as such, this concession from Canada increases the possibility that the US and Canada could reach an agreement before the October 1st deadline. That said, sentiment around NAFTA has been relatively upbeat with the Canadian Trade Minister stating that talks had been constructive. The outlook for the Canadian Dollar is very much dependent

NAFTA Deal to Prompt Aggressive BoC Tightening

Economic data has been very encouraging for Canada with GDP tracking above the BoC’s forecasts at 2.9%, while inflation is at the top end of the central banks range 1-3% range. Consequently, the BoC are expected to lift interest rates again next month, with OIS markets attaching a 63% probability of a 25bps hike. That said, provided a NAFTA agreement is reached, the Bank of Canada may signal a more aggressive tightening stance, which had been suggested by the Deputy Governor, Wilkins, who noted that the rate setters had considered whether to remove “gradual approach” to their rate guidance. If indeed a NAFTA agreement is reached, a repricing of a December rate hike could spark a notable bid in the Canadian Dollar.

Bank of Canada Rate Hike Expectations

CAD Soars as Canada Ready Key Concession to Reach NAFTA Deal

Source: Thomson Reuters

USDCAD PRICE CHART: Daily Time Frame (January-September 2018)

CAD Soars as Canada Ready Key Concession to Reach NAFTA Deal

Chart by IG

USDCAD moves back into the bearish channel, however a cluster of DMA’s are holding for now. Although, the bias in USDCAD is to the upside, the trend has weakened. Support at 1.30 is the target for USDCAD bears, in which a close below could see a test of the August lows (1.2887)

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

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