USD/CAD – Canadian dollar jumps to 10-week high as US and Mexico reach trade deal

The Canadian dollar has gained ground on Tuesday, after posting strong gains on Monday. Currently, USD/CAD is trading at 1.2919, down 0.37% on the day. On the release front, the U.S releases CB Consumer Confidence, which is expected to drop to 126.6 points. There are no Canadian events on the schedule. On Wednesday, the US releases Preliminary GDP and Pending Home Sales, while Canada publishes current account.

The Canadian currency continues to rally, in response to the dramatic announcement that the U.S and Mexico have reached a new trade deal. USD/CAD has dropped 1.2% since Friday, and the pair is at its lowest level since mid-June. Under the new agreement, Mexican car plants will continue to manufacture their cars and send them on to the U.S and Canadian markets without the imposition of heavy tariffs. This agreement comes after months of escalating trade tensions, which have shaken global equity markets. The next likely step is for Canada to join the U.S and Mexico as part of NAFTA 2.0. However, President Trump doesn’t appear in a rush to extend the deal to Canada, and there will be intensive negotiations before Canada can rejoin the club. Still, Mexico has formally asked the U.S to include Canada in the agreement, and the rise in the Canadian dollar indicates that the markets expect Canada to reach an agreement with the U.S and Mexico.

Federal Chair Jerome Powell was the keynote speaker at the Jackson Hole Economic Symposium. Powell’s dovish remarks on Friday sent the U.S dollar broadly lower and the Canadian dollar jumped on the bandwagon and ended the week with gains. Powell reiterated that the Fed would continue its policy of gradual interest rate hikes, saying that a cautious approach was prudent. The Fed has faced criticism about its current policy from all sides – some analysts have argued that the Fed has been too aggressive, given weak inflation, while others say the Fed should tighten more quickly, due to the extremely tight labor market. Powell appeared to take a middle approach of raising rates, but slowly. The Fed has already raised rates twice this year, and a September hike is practically a given, with the CME Group estimating the odds of a hike at 96%. The odds of a December hike currently stand at 66%.

A deal is a deal

Canada should expect tough trade negotiations with U.S

USD/CAD Fundamentals

Tuesday (August 28)

• 8:30 US Goods Trade Balance. Estimate -68.6B
• 8:30 Preliminary Wholesale Inventories. Estimate 0.1%
• 9:00 US S&P/CS Composite-20 HPI. Estimate 6.4%
• 10:00 US CB Consumer Confidence. Estimate 126.6
• 10:00 US Richmond Manufacturing Index. Estimate 18

Wednesday (August 29)

• 8:30 Canadian Current Account
• 8:30 US Preliminary GDP. Estimate 4.0%
• 10:00 US Pending Home Sales. Estimate 0.6%

*All release times are DST

*Key events are in bold

USD/CAD for Tuesday, August 28, 2018

USD/CAD, August 28 at 8:10 DST

Open: 1.2967 High: 1.2983 Low: 1.2915 Close: 1.2919

USD/CAD Technical

USD/CAD showed little movement in the Asian session. The pair has reversed directions in European trade and moved downwards

• 1.2831 is providing support
• 1.2970 is the next resistance line
• Current range: 1.2831 to 1.2970

Further levels in both directions:

• Below: 1.2831, 1.2733 and 1.2666
• Above: 1.2970, 1.3067, 1.3160 and 1.3292

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