Looks like NAFTA negotiations are progressing! Will it affect the Loonie’s price action this week?
Here are potential catalysts for the Loonie:
GDP reports (Aug. 30, 12:30 pm GMT)
Canada’s economy grew by 0.5% in May, much stronger than the 0.1% uptick seen in April and the 0.3% expansion seen by market geeks.
A closer look told us that growth was broad-based, and that higher commodities also helped in boosting mining and oil and gas industries.
This week analysts expect to see growth calm down to 0.1% in June. However, investors might focus more on the quarterly GDP release.
With exports surging and retail sales performing strongly in Q2, analysts are saying Canada’s annualized GDP might print at 3.0% in the second quarter. If it does, it would be much faster than the 2.6% increase we saw in Q1 2018.
Looks like the U.S. and Mexico are about done with their bilateral negotiations!
Over the weekend Trump tweeted that the U.S. could reach a “big Trade Agreement” with Mexico “soon.” Mexican Trade Minister Ildefonso Guajardo echoed the sentiment when he shared that the two sides are likely “hours” away from reaching a common position.
Our relationship with Mexico is getting closer by the hour. Some really good people within both the new and old government, and all working closely together….A big Trade Agreement with Mexico could be happening soon!
— Donald J. Trump (@realDonaldTrump) August 25, 2018
Aside from avoiding more tariff-related conflicts, the fact that the U.S. softened its stance on the “sunset clause” presented hope for more NAFTA agreements. Maybe Canada is due to sit on the big boys’ table?
Last Week’s Price Review
The Loonie is currently on course to closing out the week on a mixed note (as of 5:00 pm GMT). The Loonie is a net loser, though, so the Loonie’s four-week winning streak will soon be broken.
Looking at the overlay of CAD pairs and oil, it’s quite obvious that the Loonie didn’t really track oil prices very closely this week.
However, we can also see that the Loonie suffered the bulk of its losses on Tuesday. Although selling pressure was already evident on Monday. So what happened on Monday and Tuesday?
Well, there wasn’t really anything on Monday. I even noted during Monday’s London session recap that the Loonie’s price action was rather wonky.
Profit-taking may have been a possibility after last week’s CPI-induced jump and ahead of BOC Senior Deputy Governor Carolyn Wilkins’ speech and NAFTA talks.
However, it’s also possible that the Loonie was just simply a victim of opposing currency price action because, as already mentioned in the weekly recaps for the other currencies, all the other currencies had reasons to attract buyers, with the exception of the Greenback since the Greenback had reasons to attract sellers.
The same also holds true on Wednesday since the Loonie traded somewhat sideways against the Greenback, which was still under pressure at the time, but gained ground against the broadly retreating yen. But at the same time, the Loonie continued to lose out to everything else, since the other currencies also had their own reasons for attracting buyers.
However, the Loonie also appears to have been kicked lower because of the unexpected contraction in Canadian wholesale sales, which likely fueled speculation that Canada’s retail sales report would also disappoint.
And as it later turned out, Canada’s retail sales report did disappoint, which caused the Loonie to weaken.
However, the Loonie’s losses were only limited likely because of short covering by market players who shorted preemptively on Tuesday, as well as support provided by rising oil prices.
Also, NAFTA-related headlines likely provided support as well. As for specifics, Mexican Chief NAFTA negotiator Jesus Seade said that talks are supposedly “making good progress (and) coming to the end.”
Politico then released report that cited three unnamed sources as saying that the U.S. and Mexico will supposedly announce a breakthrough in NAFTA talks come Thursday, which will finally allow Canada to rejoin NAFTA talks.
And Mexican Economy Minister Ildefonso Guajardo later appeared to confirm the Politico report when he said that:
“We hope that we’ll have a solution in the next couple of hours, or the next couple of days.”
However, NAFTA-related optimism would later wane when Seade shot down Guajardo’s statement and the Politico report when he said the following after NAFTA talks ended on Wednesday.
“We are already looking at all the issues. We might close this, not in a matter of hours, but these days. We still have next week.”
The Loonie perked up again on Thursday ahead of another round of NAFTA talks, probably because some traders were hoping against hope that some progress would be made. However, scant progress was made and talks look set to continue next week (without Canada), so NAFTA-related optimism evaporated again.
After that, the Loonie’s price action became a bit more mixed. Although there were signs of late broad-based buying on Friday. There was no apparent catalyst, however.