What Does the Phase One Deal Mean for the Canadian Dollar?

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The United States and China met yesterday to sign their agreed-upon Phase One trade deal. US President Donald Trump and representatives from China met to sign the document which will see a lift on some US tariffs on China with an aim to bolster global economic growth. Many awaited the signing of the deal as then the details of the agreed terms would be released. The signing of the Phase One deal appears to have lifted the sentiment and the CAD has benefitted from this. Investors in the Canadian Dollar will be hoping the effect of the deal can be positive enough to encourage the Bank of Canada (BoC) to leave its cash rate unchanged again in 2020.

Phase One Deal Signing Lifts the Global Trade Outlook

As both the US and China met to sign the Phase One deal, the global economy received an uplift. The details revealed from the deal suggested that some (but not all) tariffs had been reduced on China, as sources suggest that China is committed to making $200 billion additional purchases of US goods, including around $40 billion in agricultural products. US Treasury Secretary Steven Mnuchin noted that some tariffs would be reduced, but not all of them, the rest would remain in place until the Phase Two deal is completed. Nevertheless, the deal signing has given a boost to the global trade outlook and the commodity-related Canadian Dollar is set to benefit.

Investors Hope the Phase One Deal Can Guide the BoC Away From Rate Cuts in 2020

The investors of the Canadian Dollar will be hoping that the Phase One deal signing and bolstering of the global trade outlook will fend off any chances of a rate cut from the Bank of Canada in 2020. Recent standings of the CAD suggest it is not top-dog but is still riding high in the major currency league table. It also is faring much better than the GBP which is troubled by concerns over potential Bank of England rate cuts. The GBP’s decline has allowed the CAD to edge up over it and the news of the trade deal signing is likely to benefit the Canadian Dollar even further in the CAD/GBP exchange rate.

Going forward, the Canadian Dollar is backed by a stabilising economy, a weakening of the USD and a steady BoC cash rate of 1.75%, all of which combine to support the currency as it pushes further into the year. Investors with an interest in the GBP and CAD will keep an eye on the further effects of the Phase One deal, the BoC’s stance as the CAD gains from the deal and the GBP’s response to its domestic data releases which could pressure the BoE into making a cash cut at month-end.

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