HomeContributorsFundamental AnalysisCanadian Dollar Edges Lower, Markets Eye Fed Policymakers

Canadian Dollar Edges Lower, Markets Eye Fed Policymakers

The Canadian dollar has posted slight losses in the Tuesday session. Currently, USD/CAD is trading at 1.2537, up 0.15% on the day. On the release front, there are no Canadian releases, and no major US indicators. On Wednesday, the focus will be on US housing data, with the release of Housing Starts and Building Permits.

The NAFTA pact is under attack from US President Trump, and that could spell trouble for the Canadian economy. Trump has declared that NAFTA has been terrible for the US and has vowed to renegotiate the deal. Negotiations between Canada, the US and Mexico over re-negotiating NAFTA have not gone well, and Trump has previously declared that he could scrap the deal and simply enter a new trade agreement with Canada. One of the key US demands that Canada is not happy with is a "sunset clause" which would require new negotiations every five years. The lack of progress in the talks has sent the Mexican peso lower, and if the unpredictable Trump decides to scrap the agreement, the Canadian dollar could lose up to 10 percent of its value, according to the Bank of Canada. The Bank surprised analysts with a rate hike in September, and the odds of another raise in rates is pegged at just 20 percent. BoC Governor Stephen Poloz has expressed concerns about the risks of the scrapping of NAFTA, and BoC policymakers would prefer not to raise rates until the NAFTA negotiations are settled. However, if the Federal Reserve raises rates in December, and the BoC does not follow suit, the Canadian dollar would likely lose ground.

Oil prices continue to move higher, as fighting continues between Iraq and Kurdish forces. On Tuesday, the Iraqi army occupied the city of Kirkuk, which is located in an oil-rich region. Relations between Iraq and Kurdistan have deteriorated since the Kurds voted for independence in September, and the Iraqi offensive could disrupt oil shipments and raise oil prices, which would be bullish for the Canadian dollar.

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