NAFTA negotiations to begin again

As per media yesterday, high level negotiations pick up again about NAFTA between the US, Canada and Mexico. US president Trump said on Monday, that he talked with Mexico about doing something very dramatic, very positive to reach a trade deal. Most sticking points continue to include car content rules, the expiration clause and Trump’s threats of tariffs on foreign cars. It should be noted that Canada and Mexico remain optimistic about reaching a deal, though an August deadline may seem too soon. Under certain circumstances, further headlines about further progress in the NAFTA negotiations could support CAD and MXN.

USD/CAD dropped yesterday, breaking consecutively the 1.3120 and the 1.3050 support lines, reflecting the strengthening of the Looney and the weakening of the USD. We could see the pair stabilizing today maybe even correcting a bit, however the pair may prove sensitive to any further headlines regarding NAFTA as well as today’s US financial releases. Should the bears be in the driver’s seat, we could see the pair breaking the 1.2985 support line, while if the bulls take over the market we could see the pair breaking the 1.3050 resistance line and aim for the 1.3120 resistance hurdle.

BoC remains on hold, CAD strengthens

BoC kept its interest rate unchanged yesterday at +1.25% as was widely expected, however issued a rather hawkish accompanying statement. The statement dropped tis reference for the bank as being cautious and did not mention the NAFTA negotiations per se. The bank mentioned clearly that higher rates will be needed to keep inflation near target and that a gradual approach guided by incoming data will be taken, practically paving the way for a rate hike in the next meeting. Currently, CAD OIS imply a possibility for a rate hike of 63.56% in July. Overall, the CAD strengthened on the good news and it could strengthen even further should there be more signals for a possible rate hike in the future.

USD/CAD dropped yesterday breaking the 1.2985 and the 1.2915 support lines. We could see the pair stabilizing today and trade in a sideways manner, however financial data releases could set the pair under selling interest somewhat. Should the pair find buying orders along its path we could see it breaking the 1.2915 resistance level and aim for the 1.2985 resistance hurdle. Should it come clearly under selling interest we could see it breaking the 1.2860 support line and aim for the 1.2800 support barrier.

BoC interest rate decision

BoC is to announce its interest rate decision today at 14:00 (GMT) and is expected to remain on hold at 1.25%. Currently, CAD OIS imply a probability for the bank to remain on hold of 89.75% and 10.25% for a 25bp rate hike. Market focus could shift to the accompanying statement. It could be the case that the bank will retain a more cautious tone and maybe tolerate the current inflation rate which is within the range of the bank’s inflation rate target. The reason behind could be that it may be watching out for the uncertainty of the NAFTA negotiations, the high private debt level and the unemployment rate. Should there be a dovish accompanying statement we could see the Loonie weakening.

USD/CAD rose yesterday testing the 1.3050 resistance line. Technically the pair has traded above the fragile upward trend-line incepted since the 22nd of May, with the RSI indicator remaining steadily near the reading of 70 for the past 5 days in the 4 hour chart. The trend could also be fundamentally explained, as the uncertainty of the NAFTA negotiations continues and the release of Canada’s Current Account balance along with BoC’s interest rate decision could weaken the CAD. Hence we maintain our bullish bias until the prementioned trend line is clearly broken. Should the pair come under selling interest, it could break the prementioned upward trend-line and the 1.2985 support line. Should it find fresh buying orders along its path, we could see it breaking the 1.3050 resistance line and aim for the 1.3125 resistance hurdle.