The Canadian dollar is trading sideways in the Wednesday session. Currently, USD/CAD is trading at 1.3292, up 0.04% on the day. On the release front, there are Canadian events on the schedule. The U.S releases Existing Home Sales, which is expected to rise to 5.52 million. On Thursday, Canada releases ADP Nonfarm Employment Change and Wholesale Sales. The U.S will publish manufacturing and employment reports.
The Canadian currency continues to struggle, and is down 2.9% since June 11. Earlier on Wednesday, USD/CAD broke above the 1.33 line for the first time since June 2017. Investors are nervous over the escalating trade war between the U.S and China, and lower risk appetite could spell bad news for the Canadian dollar. The most recent round of the trade spat between China and the U.S started on Friday, when the U.S announced a 25 percent tariff on $50 billion in Chinese goods. After China responded with an identical move on U.S. imports, President Trump has now threatened to impose 10 percent tariffs on some $200 billion in Chinese goods. Not surprisingly, China has threatened to retaliate to this latest move. Trump has vowed to take action on the $375 billion trade deficit that the U.S has with China, claiming that the latter is guilty of unfair trade practices. With the first of the U.S tariffs scheduled to take effect on July 6 and no signs that either side will blink first, the Canadian dollar could be sailing into nasty headwinds.
Canada is particularly vulnerable to protectionist moves south of the border, as some 80% of Canadian exports go to the United States. With President Trump making good on his threat to slap tariffs on his trading partners, the Canadian government is scrambling to protect the economy. Trump has said the U.S could impose tariffs of 25 percent on Canadian-built vehicles, which would be disastrous for the Canadian automotive sector, which is worth some C$80 billion to the economy every year. The Trudeau government has promised to help sectors hit with US tariffs, but bailing out the auto industry would cost billions. Canada may have to provide the U.S with more concessions in the NAFTA negotiations, in order to stave off tariffs against Canadian vehicles, which could have a disastrous effect on economic growth.
