The Canadian dollar has posted slight gains in the Wednesday session. Currently, USD/CAD is trading at 1.3128, down 0.20% on the day. On the release front, there are no Canadian indicators for the remainder of the week. In the U.S, New Home Sales is forecast to drop sharply to 669 thousand. On Thursday, the U.S will release durable goods reports and unemployment claims.
Escalating trading tensions continue to worry Canadian policymakers, as the Canadian economy is heavily dependent on its export sector. NAFTA negotiations are expected to intensify now that the Mexican election is over, and one of the key stumbling blocks is the Trump administration’s insistence on higher U.S content in vehicles produced in North America. Auto tariffs is also a key point in the trade war between the U.S and the EU, with the U.S threatening to slap tariffs on European cars. On Wednesday, European Commissioner President Jean-Claude Juckner will meet with President Trump at the White House. If progress can be made on auto tariffs, this could mean that the U.S is showing some flexibility, which could lead to a breakthrough in the NAFTA negotiations.
The markets have been shaken up by recent trade tensions and investors may have to worry about a global currency war. On Friday, U.S President Trump attacked the EU and China for manipulating their currencies and keeping interest rates lower. The U.S dollar has held its own in the last few weeks, but use of the currency as a trade weapon could backfire. This was underscored on Friday, as the U.S dollar was broadly lower after Trump’s tweets criticizing currency manipulation. Trump has said that he prefers a weaker U.S dollar, which could prompt global investors to dump their dollar assets and send the currency lower.
