The Canadian dollar is getting thrashed, USD/CAD gapped higher when Asia started, opening at $1.2984 after closing on Friday at $1.2928 after the G-7 meeting ended in acrimony.
U.S. President Trump refused to sign the G-7 communique. He became extremely annoyed when Prime Minister Justin Trudeau used his closing speech to "pump his own tires". Trudeau told reporters how he talked tough to Trump about his use of tariffs and said that "Canadians were insulted".
President Trump more or less called him a liar. The President tweeted: "Based on Justin’s false statements at his news conference, and the fact that Canada is charging massive Tariffs to our U.S. farmers, workers and companies, I have instructed our U.S. Reps not to endorse the Communique as we look at Tariffs on automobiles flooding the U.S. Market!" He added "PM Justin Trudeau of Canada acted so meek and mild during our @G7 meetings only to give a news conference after I left, saying that, 'U.S. Tariffs were kind of insulting' and he 'will not be pushed around.' Very dishonest & weak. Our Tariffs are in response to his of 270% on dairy!"
President Trump made no secret about his dislike for the North American Free Trade Agreement (NAFTA). Trudeau’s grandstanding made things worse and Canadians will be the victims.
Trade war fears and the death of NAFTA are just one of many issues undermining the Canadian dollar. The Bank of Canada is expected to raise interest rates in July. That move may be delayed because of the rising trade tensions and the threat of a trade war. The risk that CAD/US interest rate differentials will widen in favour of the U.S. is a Canadian dollar negative.
The Federal Open Market committee meeting is Wednesday. They are expected to raise rates by 0.25% which is already reflected in the current USD/CAD exchange rate. However, if the statement or press conference suggest that US rates could rise higher and faster than previously expected, the Canadian dollar will sink.
The Canadian dollar has lost a little support from oil prices. WTI oil is well above $60.00/barrel but has declined steadily after peaking at $72.95/b Oil traders are concerned about the Organization of the Petroleum Exporting Countries and Russia ending their production cap agreement as U.S. shale production continues to increase.
The Canadian dollar will trade with a negative bias this week but take a back seat to global issues including the US/North Korea Summit, the FOMC meeting and the European Central Bank policy decision.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians.
