CAD outlook has soured - Rabobank

Sandeep Kanihama FXStreet Contributor

In view of Jane Foley, Senior FX Strategist at Rabobank, the CAD outlook has clearly soured this week.

Key Quotes

“Since February Canadian politicians and businesses have been drawing comfort from Trump’s remarks that for Canada, NAFTA would only have to be ‘tweaked’. This outlook changed dramatically this week as a war of words broke out over lumber and dairy trade. For the past three decades the US has been uneasy with Canadian lumber imports, accusing its Northern neighbour of having an unfair advantage since most of the production sites are owned by provincial governments.”

“In 2015, a nine-year truce in the conflict ended and Canada has since been arguing that US proposals for a new deal are too costly. This week’s decision to slap tariffs averaging 20% on Canadian softwood was part of an independent trade dispute procedure at the US Department of Commerce. However, it has been grabbed by the Trump administration to illustrate its tough position on NAFTA. Accusations from Commerce Secretary Wilbur that Canada is blocking US dairy imports has raised the temperature further. The sabre rattling from Trump may be part of his negotiating position or perhaps a means of diverting attention away from more ‘complicated’ issues such as the proposed Border Adjustment Tax. Either way this new focus on Canada, coupled with a sharply weaker oil price, sent USD/CAD to a 14 month high earlier this week and pushed EUR/CAD back to levels last registered in November.”

“Although the CAD has since recovered a little ground, the aggressive tone by the Trump administration on the US trade relationship with Canada is likely to keep the CAD on the defensive. We maintain our forecast that USD/CAD will be trading around the 1.36 by the end of this year and that EUR/CAD is headed towards 1.49.”

Author

Sandeep Kanihama

FXStreet Contributor

Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.

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