Swissquote Bank Research Team
Swissquote Bank Ltd
The Bank of Canada’s Governing Council confirmed an increase of its overnight interest rate on Wednesday of 25 bps to reach 1.25% following strong economic data ahead of NAFTA’s sixth out of seven scheduled rounds of negotiations. By raising its interest rate, Canada confirms the healthy conditions in which its economy and its partners are lying to right now and maintains inflation on target. With a jobless rate of 5.70% (lowest rate since September 30th 2007) and Y/Y November CPI of 2.10%, the Canadian economy is approaching full employment capacity but this doesn’t suffice for having investors to neglect coming difficulties it might have to overcome next week NAFTA meeting (January 23rd 2018). The loonie instantly fell by 0.8% (CAD/USD remaining at 0.8054; +1.05% YTD though) against the greenback following BoC Governor Stephen Poloz’s recall of uncertainties surrounding NAFTA’s denouement, as the impact of slowing foreign direct investment is already hampering the economy.
Trump’s aggressive protectionism policy also poses considerable difficulties for US industrials and farmers who warned Trump not to quit NAFTA, as tariffs could considerably escalate and render American producers’ prices less attractive for their neighbors (Mexico and Canada being equivalent to 34% of US total exports as of 2016 according to the Congressional Research Service).
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We remain confident that the occurrence is unlikely, as the stakes are too high to be dismissed. Even Donald Trump confirmed to the Wall Street Journal last week that he would be “a little bit flexible” on the matter.
This report has been prepared by Swissquote Bank Ltd and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Swissquote Bank Ltd personnel at any given time. Swissquote Bank Ltd is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.
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