The Canadian dollar is awaiting developments on the North American Free Trade Agreement front. Foreign Minister Chrystia Freeland is in Washington again today to meet with U.S. Trade Representative Robert Lighthizer. Canada appears to be at a disadvantage in these negotiations.
For starters, the U.S. has already reached an accord with Mexico. The Financial Times quoted the Mexican Finance Minister stating that Mexico is willing to do a bilateral deal with the Americans, because of the fundamental importance of trade to his country. Making matters worse, President Trump is threatening to slap 25% tariffs on cars imported from Canada. The U.S. has already imposed duties on imports of Canadian steel and aluminum.
The Canadians have painted themselves into a corner. Prime Minister Trudeau is on record for saying that he would protect the domestic dairy industry and defend Canada’s supply management policies. President Trump is insisting that Canada open the dairy industry to U.S. producers.
These trade talks are somewhat acrimonious, and that is because of the Canadian government's actions. Trudeau tried to score political points by embarrassing Trump after the G-7 conference. All he accomplished was to anger the thin-skinned president.
The White House is also said to be perturbed by Freeland’s actions. She gave a speech in the U.S. after being named Diplomat of the Year by a Washington magazine. She used the opportunity to take not-so-veiled shots at Trump and the Trump administration. Also, Robert Lighthizer is said to dislike Freeland so much that he wouldn’t even include her in the U.S./Mexico talks.
The U.S./China trade dispute is missing in action, at least on the public front. There haven’t been any new developments since the passing of the deadline for public comments on the proposed 25% tariffs on $200 billion worth of China imports.
Instead, Trump injected Japan into the trade dispute when he threatened tariffs on Japanese cars if the US and Japan didn’t get a trade deal.
Canadian dollar direction will continue to be driven by U.S./Canada trade developments for the rest of this week because there isn’t any top-tier domestic data to steer positioning. Recent economic reports show a strong economy with rising inflation. The Bank of Canada is expected to raise rates in October. The question is if the pace of interest rate increases would be stepped up if a trade deal was signed.
There aren’t any U.S. economic reports of note today, and there won’t be any until Thursday’s inflation data. Instead, FX market attention will be drawn to the Bank of England and European Central Bank policy meetings on Thursday.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians