The Canadian dollar is steady in the Monday session, after posting losing sessions for three straight days. Currently, USD/CAD is trading at 1.2796, up 0.23% on the day. The Canadian dollar remains under pressure and has dropped to a 2-week low. On the release front, Canada releases Wholesale Sales, which is expected to improve to 0.3%. As well, BoC Governor Stephen Poloz testifies before the House of Commons Standing Committee on Finance. In the US, Existing Homes is expected to inch up to 5.55 million. On Tuesday, the US publishes CB Consumer Confidence.
Negotiating teams from Canada, the US and Mexico met on the weekend as they continue to try and hammer out a new NAFTA deal. The sides continue to show cautious optimism, but all agree that significant work remains. A final agreement is unlikely before May, and with elections in Mexico in early July, Mexican politicians will not want to have to deal with such a critical agreement in the middle of an election campaign. The parties may choose to announce a draft agreement in May and present the finalized deal later in the year.
The Bank of Canada maintained the benchmark rate of 1.25% last month but hinted that more rate hikes are on the way. Inflation has crept closer to the BoC target of 2 percent, and the employment market remains tight. Still, the protectionist stance of the US administration remains a major headache for policymakers. President Trump has taken on China and the tit-for tat tariff battle between the US and China have raised fears of a trade war which would be disastrous for Canada. As well, the Canadian government is in tough in negotiations over a new NAFTA agreement, with the US threatening to walk away if it isn’t given major concessions. Ideally, the bank would prefer to hold off on a rate hike until the NAFTA issue is resolved. At the same time, the Federal Reserve is expected to raise rates at least twice more in 2018, and if the BoC does not increase rates as well, the Canadian dollar could fall sharply against a US currency that would be more attractive to investors.
