The Canadian dollar tumbled during the early Asian morning Tuesday, following an announcement by US Commerce Secretary Ross that his nation will impose a 20% tariff on softwood lumber coming from Canada. The US said the decision was a response to Canada’s wood subsidies. US producers have repeatedly argued that Canada’s government subsidizes its industry by charging low fees for cutting trees in government-owned lands, which results in unfairly cheap lumber prices.
The big question in our minds is whether the Canadian government – which has already condemned this action – will retaliate in similar fashion. What’s more, this move comes ahead of talks to renegotiate NAFTA that are set to take place this summer. In our view, the US action could set the tone regarding how those negotiations play out, and may be the first sign towards a tougher US trade relationship with Canada as well Mexico, considering all of President Trump’s protectionist rhetoric during his campaign. All these confirm the BoC’s concerns with regards to trade uncertainty, which was the Bank’s main argument behind its recent cautious stance. Combined with the latest slowdown in the nation’s CPIs, this uncertainty could keep the Bank’s finger near the easing button.
USD/CAD traded yesterday, after it hit support near the 1.3425 line and the prior downside resistance line drawn from the peak of the 9th of March. The news gave an extra boost to the pair, helping it to emerge above the 1.3530 (S1) hurdle and consequently to confirm a forthcoming higher high on the 4-hour chart. At the time of writing, the rate is testing the 1.3560 (R1) resistance, where a clear break is possible to open the way for a test near the key hurdle zone of 1.3600 (R2). The 1.3600 (R2) barrier happens to be the upper bound of the longer-term sideways range the pair has been trading within since September. A clear above that zone is needed to turn the broader picture positive and make us confident on larger bullish extensions.
Australia’s CPI data for Q1 in focus
During the Asian morning Wednesday, Australia will release its CPI data for Q1. Expectations are for both the headline and trimmed mean rates to have risen, with the headline print returning back within the RBA’s inflation target range of 2-3%. At its latest policy meeting, the RBA appeared slightly more dovish, particularly with regards to the labor market. However, after that gathering, data showed that the nation’s labor market recovered strongly in March, which makes the case for easing at the upcoming meeting less likely. Accelerating CPIs could decrease further the possibility for any action, and may even prove cause for a slightly more upbeat message from the Bank. As such, AUD could strengthen at the time of the CPIs release.
AUD/USD traded in a consolidative manner yesterday staying between the support of 0.7550 (S1) and the resistance of 0.7585 (R1). Accelerating CPIs could encourage buyers to take control and perhaps set the stage for a test near the key obstacle of 0.7600 (R2). If they prove strong enough to overcome it, they may push the battle towards 0.7625 (R3). Switching to the daily chart, we maintain the view that the broader path is to the sideways. The rate has been oscillating between 0.7160 and 0.7800 since March 2016.
Today’s highlights:
During the European morning, the economic calendar is very light. The only noteworthy indicator we get is Sweden’s unemployment rate for March, which is expected to have ticked down.
From the US, we get the CB consumer confidence index for April, new home sales for March, and the S&P/Case-Shiller house price index for February.
USD/CAD
Support: 1.3530 (S1), 1.3490 (S2), 1.3455 (S3)
Resistance: 1.3560 (R1), 1.3600 (R2), 1.3660 (R3)
AUD/USD
Support: 0.7550 (S1), 0.7515 (S2), 0.7475 (S3)
Resistance: 0.7585 (R1), 0.7600 (R2), 0.7625 (R3)
