The Canadian dollar is steady in the Monday session. Currently, USD/CAD is trading at 1.2871, down 0.14% on the day. On the release front, Canadian banks are closed and there are no Canadian indicators. In the US, the sole event is a speech from FOMC member Raphael Bostic. On Tuesday, Canada releases Wholesales Sales and the US publishes the Richmond Manufacturing Index.
There was a dramatic development in the China-US tariff battle on Sunday, as US Treasury Secretary Steven Mnuchin said that the trade war was being ‘put on hold’. Just last week, the White House sounded pessimistic about a deal being reached with China. The two economic giants had traded stiff tit-for-tat tariffs in recent weeks, worth billions in trade. These moves had raised fears of a bilateral trade war between the two largest economies in the world. The respite in tariffs means that the US can sit down with the Chinese and discuss the US trade deficit with China, which President Trump has long complained is a result of a non-level playing field with China. The news that the sides had backed down sent stock markets higher, and traders will likely be greeted with gains when European markets reopen on Tuesday.
The Canadian dollar recorded considerable losses on Friday, after a weak core retail sales in March. The indicator declined 0.2%, well off the estimate of 0.5%. Retail Sales was stronger, with a gain of 0.6%, above the estimate of 0.3%. Inflation remained steady, as CPI came in at 0.3% in April, matching the estimate. On an annualized basis, inflation was up 2.2% in April, the third straight month it exceeded the Bank of Canada inflation target of 2.0%.
Negotiations over a new NAFTA agreement have failed to reach a conclusion, and the parties haven’t even reached an ‘agreement in principle’. Although there is no official deadline to wrap up a deal, there are upcoming events which could mean that a deal won’t be made in 2018. Mexico holds general elections in June and the U.S holds congressional mid-term elections in November. Meanwhile, the Trump administration has given both Canada and Mexico another 30-day exemption on steel and aluminum tariffs, lasting until June 1. Earlier in the week, U.S Commerce Secretary Wilbur Ross said that further extensions could be granted, depending on the progress made in the NAFTA talks. Ottawa has demanded “full and permanent” exemptions from the tariffs, but may have to cough up more concessions in the NAFTA talks in order to convince Washington to exempt Canadian steel and aluminum imports from tariffs. With US Treasury Secretary Steven Mnuchin bluntly stating on Sunday that the sides remain far apart from a deal, the NAFTA talks could be in deep trouble.
