"The Canadian dollar is only slightly worse for wear this morning after spending an uneventful overnight session where it was largely ignored." said Rahim Madhavji, President of KnightsbridgeFX.com, a Canadian currency exchange company that helps Canadians get better exchange rates than the banks.
The Canadian dollar is suffering from a rash of bad news that threatens to tip it over the edge. The seemingly never-ending North America Free Trade re-negotiations may be coming to a head. U.S. President Trump has made no secret of his disdain for the trade pact. The optimism that was rampant in May for a quick resolution to the talks has given way to pessimism that Trump will pull America out of the deal, as early as Friday.
In the past few days, Trump has stated his preference for bi-lateral agreements with Canada and Mexico. Yesterday, National Economic Council Director Larry Kudlow reiterated that view.
The Canadian dollar has also suffered because of an 11.7% drop in the price of crude oil in just two weeks. Lofty oil price levels acted as a drag on Canadian dollar losses, but a lot of the stuffing from that cushion has been removed.
The Bank of Canada statement of May 30 sounded slightly hawkish, specifically because they dropped the word "cautious" from their forward guidance. The market expects that the BoC will increase the policy interest rate from 1.25% to 1.50% at the July meeting. That expectation has helped put a floor under recent Canadian dollar losses.
We may get a little more clarity from the BoC today with the release the semi-annual Financial Stability Review (FSR). High levels of household debt have been a concern for Governor Stephen Poloz and company. Earlier, he said that the BoC feels that the risks associated with the high debt levels, combined with the new mortgage rules, makes the issue "manageable." More than likely the FSR will confirm that sentiment.
Poloz’s press conference at 11:15 am EDT may be a source of volatility. The governor will likely be asked about the future course of monetary policy. If he stresses the risks to the NAFTA deal, the Canadian dollar slide may pick up speed. If he does not seem concerned, the Canadian dollar will move higher.
There isn’t any notable data from Canada or the US to provide direction today, suggesting a quiet trading session is likely.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians.
