CAD: All hands on the NAFTA deck – ING

With the Bank of Canada hiking rates as broadly expected, the focus for CAD now shifts to two external factors: (1) US trade policy and NAFTA negotiations and (2) oil prices, according to analysts at ING.

Key Quotes

“The fifth - and potentially penultimate - round of NAFTA talks will dominate the agenda; while our base case is that a break-up will be avoided, noise around NAFTA may act as limiting factor for CAD. But any actual fallout from negative NAFTA noise may be fairly muted - CAD (and now MXN) is showing some resilience despite some anti-NAFTA sentiment from President Trump. This suggests that markets are looking to trade the facts - rather than buy into any Trump-fuelled rumours.”

“The week ahead also sees retail sales (Thu) and CPI (Fri) data releases. The BoC see inflation now broadly stabilising below the 2% target over the coming months - but upside surprises do risk the potential for another 1H18 rate hike (likely May). For now, we expect a 'NAFTA premium' to keep the CAD curve fairly flat - with markets instead see a 2H18 hike as more likely. USD/CAD looks to have found support at the 1.24 level - a significant breach of this seems unlikely in the absence of any further positive CAD developments.”