USD/CAD: Canadian Dollar Rises After Bank Of Canada Rate Hike Comments

The Canadian dollar rose on Thursday after Bank of Canada Deputy Governor Carolyn Wilkins said that a breakdown in the U.S.-Canada trade talks would not keep the central bank from raising interest rates.

The loonie had been under pressure for most of the day as comments out of Washington were not conclusive about the fate of the NAFTA 2.0. The Canadian central bank had kept interest rates unchanged on Wednesday giving little support for the currency. The comments from Wilkins are a shot in the arm for the Canadian dollar ahead of employment data out of Canada and the United States on Friday.

The fell by 0.18 percent and is trading at 1.3153 with the BoC keeping its eye on inflation. Higher interest rates are need to achieve the CB’s target and Wilkins mentioned that sometimes trade protectionism could stoke inflationary pressures if consumer prices go higher.

USD/CAD for April 6, 2018.

USD/CAD for April 6, 2018.

Big issues remain on the table for the U.S. and Canada and an instant negotiation was always a long shot. The deal struck by the U.S. and Mexico took advantage of a Mexican presidential aftermath that eased negotiations to reach a bilateral deal.

Mexico and Canada remain committed to a trilateral NAFTA agreement. Comments from U.S. President Donald Trump about a short deadline for NAFTA and rebuking China’s trade talks has once again put pressure on the CAD and the MXN.

USD/MXN for Sept. 6, 2018.

USD/MXN for Sept. 6, 2018.

Mexican officials said today that NAFTA will not be an agreement until Canada signs on. Economy Minister Guajardo has pushed for Canada to rejoin the talks and eventually enter into the same agreement it now has with the U.S.

The loonie rose as positive comments hit the wires. Trade negotiations between the U.S. and Canada have had their fair share of finger pointing, but so far they have agreed to keep comments to the press to a minimum, which has helped keep the deal on the table.

Market reaction has been mixed as while the deal struck between U.S. and Mexico was a positive for global trade, the U.S. has toughen its stance on Chinese goods, with a new round of tariffs waiting in the wings. China is expected to retaliate escalating the trade war between the two economies and dragging down global growth forecasts.

The Mexican peso is extremely sensitive to NAFTA news as the agreement between U.S.-Mexico has shielded the currency from most of the negative effects of the emerging market contagion. A flight to safety has investors buying the big dollar as they liquidate their peso denominated assets.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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