The Canadian dollar is trading sideways in the Monday session. Currently, USD/CAD is trading at 1.3000, down 0.07% on the day. On the release front, it’s a quiet start to the week. Canada releases foreign security purchases and the U.S publishes the Empire State Manufacturing Index, which is expected to slip to 23.2 points. On Tuesday, Canada releases Manufacturing Sales.
With only a handful of key fundamental events early in the week, investors will be keeping a close eye on the US-China trade spat. The two economic giants have already exchanged tariffs on the other’s products, and President Trump has threatened to sharply up the ante and impose tariffs of some $200 billion on China. Trump may be bluffing, but his rhetoric could torpedo trade talks with China. The timing of any new tariffs remains uncertain, as well as the level of the tariffs – will they be 10% or a far more punitive 25%? Investors remain on alert, and the specter of another tariff announcement from the U.S and the likely retaliatory response from China could boost the U.S. dollar this week. If the U.S does go ahead with further tariffs, it could put a chill on more than the equity markets. According to a report from UBS, a tariff of 10% on Chinese products could slow U.S growth in the fourth quarter and result in the Federal Reserve skipping a December rate hike.
Canadian and U.S negotiators continue to insist that the sides will hammer out a new NAFTA agreement, but investors have their doubts. There are have been no three-way talks since August, and a senior Mexican negotiator said that Mexico would like to conclude a three-way agreement but was prepared to advance bilaterally with the United States. Ottawa cannot afford to be left out of NAFTA, and has made concessions to open up its dairy sector to US producers. However, President Trump could squeeze further concessions out of Canada before agreeing to a deal. If the deadlock continues, the uncertainty could weigh on the Canadian dollar.