Trade and oil updates helped propel the Loonie to the top of the charts last week. Think this week’s catalysts can extend its bullish run?
Canada’s monthly GDP (March 29, 12:30 pm GMT)
In last month’s release we saw Canada’s GDP come in at 0.1% after clocking in a 0.4% growth in November.
What spooked Loonie bulls was that the economy had only expanded by 1.7% on the quarter, which is lower than the expected 2.0% growth. What’s more, the previous quarterly reading was also downgraded!
Will Canada’s growth exceed 0.1% in January? Or will we see more downgrades this week? Keep your eyes glued to the tube, fellas!
Trump’s decision to forego a key demand in NAFTA negotiations boosted the Loonie like there was no tomorrow.
But the battle has only begun. Word around the hood is that the POTUS set a deadline on Canada’s aluminum tariffs exemption to coincide with the last round of NAFTA negotiations. This basically implies that the Donald is tying Uncle Sam’s tariff exemptions to NAFTA negotiations.
Unless Canada finds a common ground with the U.S. regarding Canada’s exports, then we might see another round of selling for the Loonie.
Trade war updates
Another week, another chance to rock the boat! Now that the Trump administration has made its first major moves against China’s products, and China has shown its first responses, all eyes will be on the trade giants to see if the trade war will escalate over the next couple of days.
If Trump doesn’t show willingness to soften his stances and/or negotiate his protectionist positions, then we might see risk aversion take its toll on higher-yielding currencies like the Loonie.
Last Week’s Price Review
The Loonie was last week’s biggest loser but it had a reversal of fortune since it’s currently THE best-performing currency of the week (as of 5:00 pm GMT).
And looking at the overlay of CAD pairs and oil, it looks like most CAD pairs were riding the surge in oil prices this week.
And the surge in oil prices, in turn, was drive by a slew of reasons, which include possible supply disruptions because of tensions in the Middle East and the ongoing troubles in Venezuela, signs of higher demand due to the unexpected draw in U.S. crude oil inventories, and a statement from the Saudi Energy Minister on the possibility of extending OPEC’s oil cut deal further into 2019.
The Greenback’s overall weakness also likely helped to support oil prices. And the same can probably be said of John Bolton’s appointment as Trump’s National Security Adviser to replace McMaster.
After all, Bolton is… a bit of a war freak (to put it nicely). In particular, Bolton has a long history of calling for a war with Iran, a major oil producer, which increases the risk of heightening tensions in the Middle East or causing supply disruptions, given Trump’s plan to renegotiate or even pull out (as some claim) from the Iran nuclear deal.
Other than oil, the Loonie also very likely got a lift because of positive NAFTA-related reports.
The one with the most noticeable impact is a report from The Globe And Mail since that caused the Loonie to spurt higher across the board, even though oil prices were steady at the time.
As for details, the report cited unnamed sources as saying that the U.S. agreed to remove one of its most protectionist demands, namely the one where the U.S. demanded that vehicles imported from Canada to the U.S. must have at least 50% U.S. content.
Canada’s Unifor Union President later asserted that this was real and while no Canadian government officials affirmed the report, Canadian PM Justin Trudeau hinted at this positive development when he said in a later speech that: “We remain very confident that a win-win-win deal is not only possible, but likely.”
Moving on, the final driver of the Loonie’s bullish run this week is apparently Canada’s February CPI report since that revealed that Canada’s CPI rose by 0.6% month-on-month (+0.4% expected) and 2.2% year-on-year (+1.9% expected).
The +2.2% annual reading, in particular, is really good since that’s the highest in more than three years and is well above the BOC’s 2.0% inflation target. Moreover, all three of the BOC’s preferred measures for “core” inflation printed further rises, which very likely reignited expectations for another BOC rate hike, giving the Loonie a final bullish kick.