It was 0-3 for the Loonie bulls last week! Will the comdoll see more losses this time around?
Oil price movements
Last Friday’s lower oil rig count from Baker Hughes caught the attention of oil bulls. And if that’s not enough, some market players are also prepping for Iran’s sanctions which are scheduled to be implemented in November.
In fact, word around the hood is that countries like India, Japan, and South Korea are already cutting back on their oil imports.
Canada won’t be printing major economic reports this week, so oil price movements will most likely have a bigger role in the comdoll’s price action.
Make sure you don’t miss related headlines that can affect the Loonie’s price action!
NAFTA update
It’s been 800 years and it still doesn’t look like Canada has sweetened the pot enough for the U.S. to sign a trade agreement.
With Trump already hinting that he’s fine with scratching NAFTA altogether AND warning Congress against stepping in the negotiations, all eyes will be on Minister Freeland and her team to see if they can get a deal signed at all.
Bearish news like the one we saw last Friday will likely drag the Loonie lower across the board. On the other hand, positive developments, or even optimistic tweets from Trump can lift the comdoll from its recent bottoms.
Last Week’s Price Review
The Loonie will soon be marking its third consecutive week of net losses since the Loonie is currently lagging behind in third-to-last place (as of 5:00 pm GMT).
At first glance, it looks like the Loonie was tracking the slide in oil prices this week. And oil was down in the dumps this week because of emerging market fears, market analysts say.
However, market analysts also say that the the Loonie didn’t fare too well because of NAFTA-related uncertainty, which does seem to be the case since oil actually had a promising start but the Loonie was hit by selling pressure right from the get-go.
And the most commonly cited reason for the NAFTA-related uncertainty are the following tweets from U.S. President Trump over the weekend.
There is no political necessity to keep Canada in the new NAFTA deal. If we don’t make a fair deal for the U.S. after decades of abuse, Canada will be out. Congress should not interfere w/ these negotiations or I will simply terminate NAFTA entirely & we will be far better off…
— Donald J. Trump (@realDonaldTrump) September 1, 2018
….Remember, NAFTA was one of the WORST Trade Deals ever made. The U.S. lost thousands of businesses and millions of jobs. We were far better off before NAFTA – should never have been signed. Even the Vat Tax was not accounted for. We make new deal or go back to pre-NAFTA!
— Donald J. Trump (@realDonaldTrump) September 1, 2018
Anyhow, Canadian Foreign Minister Chrystia Freeland has been meeting with her U.S. counterpart. And while Freeland described talks as “positive and constructive,” an agreement seems to be elusive at the moment since trade talks are still ongoing as of 5:00 pm GMT.
As a side note, the BOC announced their latest monetary policy decision on Wednesday, but that was effectively a dud.
Sure, the BOC modified the language for its forward guidance as follows:
“Recent data reinforce Governing Council’s assessment that higher interest rates will be warranted to achieve the inflation target.”
And that’s a tad more hawkish compared to the July BOC Statement’s forward guidance that:
“Governing Council expects that higher interest rates will be warranted to keep inflation near target and will continue to take a gradual approach, guided by incoming data.”
However, the BOC also implied that it’s worried about NAFTA when it added the following to its recent policy statement:
“The Bank is also monitoring closely the course of NAFTA negotiations and other trade policy developments, and their impact on the inflation outlook.”
Moving on, the BOC statement may have been a dud, but BOC Senior Deputy Guv’nah Carolyn Wilkins’ speech was not since the Loonie clearly had a positive reaction across the board.
And as explained in Thursday’s U.S. session recap, that’s because Wilkins very heavily implied that the BOC may hike rates even if NAFTA talks fail to pan out when she said that:
“[P]rotectionist measures create risks to the upside for inflation, especially when the economy is operating near full capacity. In weighing these trade-offs, you can be sure that Governing Council will not lose sight of our primary mission. Low and stable inflation will help reduce at least one source of uncertainty for companies and households.”
Moreover, Wilkins hinted that the BOC is more hawkish than it’s letting on when she said that:
“Governing Council also discussed whether the gradual approach to raising rates that we have been taking over the past year remains appropriate. It is a natural question to ask, given that the economy has been operating at potential for the past year and it is in this part of the cycle when interest rates typically rise to preempt a buildup in inflation pressures.”
Anyhow, Wilkins’ speech apparently generated follow-through buying since the Loonie steadily climbed higher. And Canada’s poor jobs report only acted as a speed bump (except on USD/CAD).
But then again, the Loonie has been weakening for most of the week, so some short-covering is to be expected.
Also, Canada’s jobs report was actually mixed since full-time employment grew by 40.4K and the average hourly wage rate increased by 0.23% month-on-month, putting an end to three consecutive months of declines.
The damage has already been done, though, so the Loonie is turning in another poor performance this week.
But on the bright side, there was enough follow-through buying to allow the Loonie to win out against the Aussie and the Kiwi.