USD/CAD is slightly lower today but the loonie isn’t getting the same kind of lift that we’re seeing in the Australian dollar as the risk trade ramps up today on the end of the war in Iran.
The main reason for the sluggish CAD performance is the fall in crude oil prices. WTI is down $4.46 to $80.42 today in a rout as oil gets set to flow through the contested Strait. Trump has frequently said it’s open now but the US military put out a communique saying that’s not the case. Some sources say it will open Friday after the signing and others say within 30 days.
The upshot for the loonie is that opening Hormuz removes some risks around global growth and that should help other exports, including gold, metals and soft commodities. We should also see a broader shift out of US dollars as emerging market risks decline and the repercussions of the war hurt American hegemony.
The problem for the loonie is that Trump will quickly move onto his next target and that’s likely to be the USMCA trade agreement. I’m confident that the deal won’t be blown up during the current review but I’m less-confident that Trump won’t take it to the limit. He has the opportunity to announce a six-month withdrawal and then use that for leverage during negotiations before ultimately signing a deal. The time to do that might be July 1, in order to put the pullout at year-end. The headline shock from that would be CAD (and MXN) negative.
Domestically, the Canadian economy is doing ok. Inflation is a bit of a problem but it should come down with oil prices and the latest jobs report was strong. In contrast, GDP has contracted in the past two quarters, though the most recent one was just -0.1% annualized. Forward indicators point to a good rebound in Q2 but it’s not exactly sizzling and USMCA uncertainty isn’t helping.
Technically, there is a series of higher highs in USD/CAD that includes the breakout from last week. There is some momentum towards the November highs near 1.4130 and I’d lean against that for any shorts
