NAFTA uncertainty is damaging CAD

Canadian Dollar Suffers Seven-Week Low Following the Spread of the Coronavirus

The North American Free Trade Agreement (NAFTA) between Canada, Mexico and the US is currently under renegotiation due to Trump’s unhappiness with the current deal which he has described as “ the worst trade deal in history.”

This does not bode well for Canada. The US is the primary purchase of Canadian exports and tariffs will hit the Canadian economy hard.

Relations between Trump and Canadian Prime Minister are currently low and the has been exchanges.

Trump made the following post on Twitter:

The US has limited tariffs on Canada to aluminium and steel, but Canadian officials are currently putting together a wide ranging list of goods and intend to implement retaliatory tariffs. If the US respond which is likely this could have severe consequences on the Canadian economy and in turn the Canadian Dollar.

GBP/CAD – The lack of progress in Brexit negotiations  is hurting the Pound and is keeping it from making any significant advances against the majority of major currencies. Economic data is also poor and there is little justification for optimism.  There was some positive news last week when the Monetary Policy Committee appeared to bring a rate hike a step closer when the vote saw a 6-3 result up from 7-2 the previous month. Some economists have said there is a 50% chance of a hike from the Bank of England (BOE) in August and a 90% chance of a hike by the end of the year.

I am not convinced. Ian Mcafferty was an MPC member who voted in favour of a hike, but he is now set to be replaced by the more dovish Jonathan Haskel. It is unlikely he will vote in favour of a hike and I believe the vote will return to 7-2. Current economic data is very poor, even the fact that unemployment is at a forty year low is dubious due to the inclusion of zero hour contracts which is hardly a form of stable employment. I think a rate hike this year is unlikely.

Despite this, I think the Canadian dollar is one of the very few currencies that the Pound can make gains against due to the NAFTA dispute, be careful of having unrealistic targets however.

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