The Canadian dollar has said the new trading week with gains. In Monday’s North American session, USD/CAD is trading at 1.2915, down 0.30% on the day. There is just one event on the calendar, with US Factory Orders expected to decline of 0.4%, after a strong gain of 1.6% in the previous release. On Tuesday, Canada releases Labor Productivity and the U.S publishes ISM Non-Manufacturing PMI and JOLTS Jobs Openings.
After a brief hiatus, the markets are again facing the nasty reality of a trade war between the U.S. and its major trading partners, which could be devastating news for the export-reliant Canadian economy. On Thursday, the Trump administration made good on its threats and imposed stiff tariffs on the European Union, Mexico and Canada. The U.S had granted all three trading partners a temporary extension, but cited insufficient progress on trade talks as the reason for the tariffs. There are renewed fears that these moves could trigger a global trade war. This has triggered promises of retaliatory tariffs on US products, and matters heated up on the weekend at the G-7 meeting of finance ministers in Canada. US Treasury Secretary Steve Mnuchin faced sharp criticism from other finance ministers over the tariffs. On Thursday, Canadian Prime Minister Trudeau tweeted that the tariffs were “unacceptable” and said that Canada would “impose dollar for dollar tariffs for every dollar levied against Canadians by the US.”
The U.S released strong employment numbers on Friday, but USD/CAD was unchanged on the day. Wage growth improved to 0.3%, up from 0.1% a month earlier. Nonfarm payrolls jumped from 189 thousand to 164 thousand and the unemployment rate dropped to a sizzling 3.8 percent. All three indicators beat their estimates and are indicative of a labor market running at full capacity.
The Canadian dollar was almost unchanged last week, but showed some volatility during the week. After a sharp drop on Wednesday, the currency reversed directions on Thursday, after the Bank of Canada sounded positive about the economy. The bank statement noted that inflation was higher than expected and the export sector remained robust. As expected, the bank maintained the benchmark rate at 1.25 percent. Inflation has moved closer to the BoC target of 2 percent and economic growth has been steady, so the BoC will be giving serious consideration to a rate hike this summer. Some analysts are even predicting that the bank will raise rates twice in the second half of 2018.
