The Canadian dollar is outperforming its peers in the G-10 commodity currency bloc space. The Australian and New Zealand dollars were hammered overnight on a combination of dovish central bank outlooks and a bout of risk aversion demand for U.S. dollar.
The Canadian dollar continues to bask in the glow of a successful conclusion to the U.S./Canada trade talks that went right down to the wire on Sunday night. A failure would not have been catastrophic for the Canadian dollar, initially, unless President Trump imposed the oft-threatened tariffs on Canadian cars imported into the U.S. That didn’t happen.
Canada, Mexico, and the United States inked the 21st-century version of the North American Free Trade Agreement, calling it the United States Mexico Canada Agreement. (USMCA) The trade negotiations were long, arduous and at times, acrimonious. That acrimony was evident in Prime Minister Trudeau’s post-deal speech. He thanked a long list of people for their efforts in the negotiations but failed to mention President Trump.
Trudeau described the deal as "profoundly beneficial" to Canada. It is hard to see how. However, the U.S. is still levying tariffs on Canadian steel and aluminum. Canada is on the hook for tens of millions of taxpayer dollars to compensate domestic dairy farmers for losses they will incur from increased American access to the market. Canada now has quotas on the number of cars that can be imported into the U.S. Canadian retailers are exposed to weaker sales from the rise in daily duty-free shopping to $150 per person from $20.00 previously.
Arguably, the "profound benefits" are in that there is a trade deal. Canada is in a worse position under the USMCA than it was under NAFTA , but it is still better than a non-agreement.
The Canadian dollar failed to add to its post USMCA announcement gains yesterday or overnight. However, its performance has been admirable given the commodity currency weakness.
The Canadian dollar is getting support from rising crude oil prices. West Texas Intermediate, the North American benchmark, has climbed 13.4% since September 7. President Trump pulled the U.S. out of the Joint Comprehensive Plan of Action (JCPOA), more commonly known as the Iran Nuclear deal and new U.S. sanctions are poised to kick in on November 4. Oil traders believe that the loss of Iran’s production which was down about 35% in August, will be more than what the Organization of the Petroleum Exporting Countries and non-OPEC nations will be able to produce, in the short term, which led to speculation of $100/b oil.
The Canadian dollar was undermined overnight by fresh risk aversion U.S. dollar demand due to Italian political developments. An Italian politician spoke about the benefits to Italy if the country left the euro, a comment which spooked traders. The U.S. dollar was in demand across the board.
Traders are awaiting fresh insight from U.S. Federal Reserve Chair Jerome Powell, who delivers a speech this afternoon.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians