The Canadian dollar was weaker on Wednesday as the Trump administration offensive continued. The lumber tariffs imposed Monday were followed by comments from a White House official on an executive order withdrawing the US from NAFTA. Lack of consistent demand put downward pressure on oil prices and the pro-growth tax reform announced by US Treasury Secretary Steve Mnuchin and Chief Economic Adviser Gary Cohn boosted the greenback against the loonie.
Canadian retail sales disappointed with a 0.6 percent contraction well below the 0.1 percent forecast. The January sales data was revised upward to 2.3 percent and is the main reason the loss in February is not raising red flags despite the sign there will be a loss of momentum as the quarter progresses.
Canadian Conservative Party leadership hopeful Kevin O’Leary withdrew from consideration hours before a televised debate. He noted the lack of support in Quebec for his decision. The Reality TV star and venture capitalist threw his support Maxine Berner
The USD/CAD rose 0.385 percent on Wednesday. The currency is trading at 1.3620 after talks between the two nations continue on softwood lumber tariffs with Foreign Minister Chrystia Freeland saying: “we are not there yet” when talking about a potential deal. Weaker retail sales in Canada and a fall in the main stock market index S&P/TSX Composite prompted by a drop in Home Capital Group share have put the CAD on the back foot.
The USD is higher across the board on Wednesday after US Treasury Secretary Steve Mnuchin and Chief Economic Adviser Gary Cohn presented the outline of the Trump tax reform. Billed as the biggest tax cut in US history its main goal is to unlock growth. The Trump administration had squandered its honeymoon period in Washington by introducing controversial policies on immigration and healthcare instead of the pro-growth reforms signalled right after Trump was victorious in the November elections. A return to pushing those policies could spark the return of the reflation trade, also known as the Trump trade.
The USD/MXN gained 1.582 percent in the last 24 hours. The pair is trading at 19.1849 after rumours in Washington about an executive order intended to pull out the US from NAFTA started circulating. Yesterday’s announcement from the White House to put tariffs on the Canadian lumber instrument was seen as a hard ball tactic ahead of the NAFTA renegotiation talks. The Mexican peso has been correlated to the Trump administration comments against free trade. So far it had been mostly rhetoric, but Canada was a surprise target which does not bode well for the eventual fate of the trade agreement between the three nations.
Energy lost 0.879 percent on the Wednesday trading session. The price of West Texas is trading at $48.93 after the Energy Information Administration (EIA) released the weekly crude inventories. Crude saw a drawdown of 3.6 million barrels destroying expectations of a 1 million loss in stocks. Gasoline and distillates also surprised but on the opposite direction with a 3.4 and 2.7 barrels buildup respectively. The price of crude will end up in red today after weak gasoline demand is resulting higher inventories ahead of the summer driving season. The Organization of the Petroleum Exporting Countries (OPEC) production cut has been offset by the rise in US shale output and a lack of demand will keep prices under pressure.
Market events to watch this week:
Thursday, April 27
Tentative JPY BOJ Outlook Report
Tentative JPY BOJ Policy Rate
2:30am JPY BOJ Press Conference
7:45am EUR Minimum Bid Rate
8:30am EUR ECB Press Conference
8:30am USD Core Durable Goods Orders m/m
8:30am USD Unemployment Claims
Friday, April 28
4:30am GBP Prelim GDP q/q
8:30am CAD GDP m/m
8:30am USD Advance GDP q/q