USD/CAD: Pricing A Higher NAFTA Risk Premium Into The Loonie; What’s Next?
The Canadian dollar should have enjoyed higher oil prices, an excellent jobs report, and an upcoming rate hike. However, something is holding it back. Is it NAFTA? Here is the view from BTMU:
BTMU Research discusses USD/CAD outlook in light of the recent reports that that Canadian government officials see an increasing likelihood that President Trump will give six months’ notice to withdraw from NAFTA, along with other reports that Canada is taking the US to the WTO over what it says are illegal flaws in its trade enforcement system.
“In these circumstances, it is understandable that market participants are pricing in a higher risk premium into the loonie to reflect the rising likelihood of a less favourable outcome from NAFTA talks. The next round of talks is scheduled to begin on the 23rd January in Montreal.
Current fundamental drivers including the higher price of oil are consistent with USD/CAD trading in the low 1.2000’s. However, if the market starts to price in a higher NAFTA risk premium of say 5% it could push USD/CAD back towards the 1.3000-level,” BTMU argues.
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