Talks surrounding the NAFTA trade agreement between Canada, Mexico and the US have the potential to affect CAD, as Trump threatens to remove the US from the agreement altogether. This market report discusses how this and other external factors could affect the Canadian Dollar.
The below table shows the difference in CAD you could have achieved when buying £200,000.00 during the high and low trading points of Thursday.
|Currency Pair||% Change||Difference on £200,000|
The North American Free Trade Agreement (NAFTA) is an agreement between Canada, Mexico and the United States, a trilateral trade bloc in North America that has been in place since ’94.
Donald Trump has stated publicly he strongly believes that NAFTA is a disastrous deal for the United States. Renegotiations are now taking place and progress has been slow.
This has created major uncertainty for the Canadian economy and if there is one thing the markets do not react well to it is uncertainty, on some occasions bad news is better than no news.
Trump’s threat to leave the NAFTA deal completely means Canada are far more concerned about the outcome of talks than the US.
This is not necessarily a surprise considering the diversity in the US’s exports. Canada, however are heavily reliant on the US purchasing their exports. The United States accounts for 75% of Canadian exports.
Canada is bracing itself for the worst possible outcome and looking at alternatives should talks collapse. There is a six month period before a member of NAFTA can leave which would be much needed for Canada to put in place new trade deals.
If you are sitting on Canadian Dollars it may be wise to sell at current levels.
Retail Sales data is a released on Thursday and the figures are paid close attention to by the Bank of Canada (BOC). It can be taken as an indicator to consumer confidence and is taken into consideration when the BOC are making a decision on Interest Rates. Retail Sales importance means it does have the power to move CAD value.
Friday brings the release of Consumer Price Index (CPI) data. CPI is a measure of inflation and it is also key to any change in monetary policy. Inflation is positive of late in Canada, at 1.9%. Even if there is a rise however I would not expect another hike short term considering interest rates recently rose to 1.5%. The BOC has to act as a separate entity so it could be deemed as positive longer term if there is a slight fall in inflation as a hike when there is the possibility of the US leaving NAFTA may not be the best scenario.
For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353 or email me here.
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