The Canadian dollar is on the outside looking in. It enjoyed a couple of months as a high-profile currency during the US/Canada trade talks, but like the Toronto Blue Jays baseball team, interest has faded. Lately, it is just an after-thought in global FX trading.
The Canadian dollar is getting very little, if any, benefit from the surge in crude prices WTI oil is above $75.00 on supply concerns due to the pending Iran sanctions and Hurricane Michael which is expected to make landfall in Florida today. Another reason for the WTI price/Canadian
dollar disconnect is the huge discount for Canada’s benchmark crude oil export, Western Canada
Select. WCS is priced at 58.25 Canadian dollars lower than WTI.
The Canadian dollar is benefiting from positive sentiment from the new United States-Mexico-Canada trade agreement. The USMCA deal eliminates President Trump’s threat to impose tariffs on U.S. imports of Canadian cars although it did not get rid of the U.S. tariffs on steel or
aluminum. With a trade war risk out of the way, Canada becomes more attractive to foreign investors.
The USMCA is a boon to the Bank of Canada. The BoC policymakers had been hampered by the lack of a deal as a trade because their forecasting models were unable to account for the innumerable variables that a collapse of the North American Free Trade Agreement would create. The USMCA deal was, for the BoC, akin to wiping a foggy mirror.
The Bank of Canada is universally expected to raise the overnight rate by 0.25% at the October 25 policy meeting. Some economists have added another rate hike into the mix, predicting three rate hikes in 2019. Last Friday’s Canadian employment report supports the view. Canada added 63,000 jobs in September, although they were all part-time.
However, the details were supportive. StatsCanada wrote: "Compared with September 2017, employment was up 222,000 or 1.2%, entirely the result of gains in full-time work (+224,000). Over the same period, total hours worked increased 0.7%."
Global market developments also govern Canadian dollar direction. The U.S. dollar is being supported by increased risk aversion trades stemming from the US/China trade war. U.S. President Trump repeated his threat to impose 25% tariffs on another $267 billion worth of Chinese imports. In an interview in the Oval Office yesterday, he said "China wants to make a deal, and I say they’re not ready yet," Trump said. "And we’ve cancelled a couple of meetings because I say they’re not ready to make a deal.” He was asked if he was ready to levy more taxes if China retaliated and he said: “they’ve already retaliated."
The president also complained about the Fed. He said they are raising rates too fast, pointing out that inflation was minimal. The Fed maintains that it is independent and not influenced by Trump’s comments.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians