Canadian dollar falls on fears of US protectionism
James Chen, CMT January 18, 2017 4:31 PM
The central bank also stated that US President-elect Donald Trump’s expected protectionist trade stance would have a significantly negative impact on the Canadian economy, but that it would hold off on a rate cut for the time being amid considerable uncertainties ahead of the new US president entering office.
Components of the anticipated Trump-style protectionism that are most relevant to Canada’s economy would be Trump’s threats of a sizable border tax and the US renegotiation of or withdrawal from the North American Free Trade Agreement (NAFTA). Canada is heavily dependent on trade with the US, and US trade policy is consequently critical to the Canadian economy.
With the BoC hinting at a future rate cut that would be tied in part to trade policies of the incoming US administration, the Canadian dollar took a significant hit just as the US dollar rebounded after several days spent within a sharp pullback. The combination of a surging US dollar and sliding Canadian dollar helped boost USD/CAD well off major psychological support around the 1.3000 handle. The 1.3000 level has served as key support for at least the past four months as USD/CAD has bounced in a trading range between 1.3000 and 1.3600.
Aside from the Bank of Canada, crude oil prices also play an important role in Canadian dollar movement. Fears that increased US oil production could mitigate the effects of the recent OPEC deal to cut oil production have recently been weighing on crude oil prices. If this continues to be the case, the Canadian dollar could be pressured even further. In the event that the 1.3000 level continues to hold, an extended bounce within the current trading range could push USD/CAD back up to target range resistance around the noted 1.3600 level.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.