Home Daily Commentaries The Loonie has been caught in the middle of the trade war crossfire

The Loonie has been caught in the middle of the trade war crossfire

Daily Currency Update

CAD - Canadian DollarThe USD/CAD rises 0.33 (weakening Loonie) at the time of this writing mainly due to the risk-off environment of the capital markets. For instance, equity markets are falling at this time: TSX -0.7%, DJIA -1.23%, S&P 500 1.3%. On the release side, Canadian Gross Domestic Product (GDP) increased 0.5 percent in March following a 0.2 decline in February. On a year to year basis, GDP came in at 1.3 percent versus the forecast of 1.2 percent. However, the first-quarter reading was slightly higher than the BoC prediction, which had stressed that the slowdown was temporary and that growth has been accelerating in the second quarter. The report shows that downward pressure on growth was driven by weakness in net trade as imports rose and export volumes saw their first quarterly decrease since 2017. The report shows that Canada had significant declines in its exports of farm and fishing products as well as a drop in crude-oil shipments. However, on a more optimistic note, the report shows that there has been the highest quarterly level of household spending in two years and the most significant bump of business investment in equipment and machinery in 23 years. Technically speaking, the USD/CAD seems to be touching a resistance of a technical pattern; it touched 1.3565 when the USD/MXN touched the highest level of the day this morning and, since then, it has fallen around 35 pips.

Key Movers

President Trump said he would impose a 5 percent tariff on Mexican goods, taking effect on June 10th, if Mexico does not stop immigrants from illegally entering the US. Washington also cautioned that the tariff could rise as high as 25 percent by October 1st if the Mexican government does not fix the problem. The USD/MXN pair increased around 3.4 percent (Mexican peso weakening) by 6:30 am EST as market participants gave thought to the implications associated with the long list of Mexican goods. Regarding China, the Asian nation is progressing with plans to restrict exports of rare earth minerals to the US if needed. Beijing is planning an essential retaliation against the US. The Chinese manufacturing PMI in May came in at 49.4 versus the 49.9 expected, which is not good news for the Chinese economy because it is falling below 50.

Expected Ranges

  • USD/CAD: 1.3465 - 1.3561 ▲
  • EUR/CAD: 1.5075 - 1.5127 ▲
  • GBP/CAD: 1.7018 - 1.7100 ▲
  • AUD/CAD: 0.9355 - 0.9381 ▲
  • NZD/CAD: 0.8782 - 0.8838 ▲