The Canadian dollar had been dancing with disaster all week. Elevated trade tensions after last week’s G-7 meeting and concern ahead of the U.S. Federal Open Market Committee (FOMC) and European Central Bank (ECB) meetings led to the Canadian dollar testing and rejecting losses below major support levels.
On Thursday, the support crumbled. The Canadian dollar tumbled throughout the day and continued to fall in the overnight session, reaching levels last seen nearly a year ago, on June 27, 2017
The Canadian dollar got sideswiped by both domestic drama and international developments. On Thursday, the ECB announced it was ending its quantitative easing program in December 2018. That was a hawkish announcement, and it gave EUR/USD a lift. The gain was short-lived.
The ECB also said that key interest rates were going to remain unchanged until the summer of 2019. That was a surprise and a very negative one at that. They were going to leave euro-zone interest rates at depressed levels while the Fed was predicting a faster pace to U.S. hikes.
EUR/USD plummeted. The Canadian dollar was swamped by the tidal wave of U.S. dollar demand across the board. USD/CAD rocketed through resistance levels and rallied unabated until running out of steam at $1.3158 in early Toronto trading today.
The break of the key resistance levels at $1.3045, $1.3065 and $1.3125 turned the outlook to bearish for the Canadian with further losses expected.
Another trade issue surfaced to add to the Canadian dollar’s woes. Italy announced that it would not ratify the Comprehensive Economic and Trade Agreement (CETA), the European Union’s free trade deal with Canada.
The Canada/U.S. trade spat is escalating. The U.S. imposed 25% tariffs on Canadian steel and aluminium that go into effect on July 1. Canada retaliated with tariffs on maple syrup and beer, sort of a Canuck belly-punch. Trade tensions elevated after the Trudeau/Trump war of words at the G-7 Summit.
Canada is also vulnerable to the fallout from the U.S. and China’s trade dispute. President Trump has already slapped punitive duties on some Chinese imports and is expected to announce another $50 billion worth of tariffs today. China said they would retaliate. The Canadian dollar would suffer on a shift to risk aversion trading.
There were precious little Canadian data releases due today, and the U.S. data should have little impact because of the focus on monetary policy.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians.
