USD/CAD has posted strong gains on Wednesday. Currently, the pair is trading at 1.2333, down 0.71% on the day. On the release front, there are no Canadian events. In the US, today’s key event is Existing Home Sales, which is expected to dip to 5.72 million. On Thursday, Canada releases retail sales reports. The US will publish unemployment claims and New Home Sales.
Will NAFTA survive? The free trade agreement is critical for the Canadian economy, so threats by US President Trump to blow up the agreement are causing genuine concern for the Bank of Canada. Negotiations between Canada, Mexico and the US have not yielded much progress, and a sixth round of negotiations start on Tuesday. Trump has repeatedly said he is unhappy with the deal, and an advisory council to Canadian Foreign Minister Chrystia Freeland sounded pessimistic about a new trilateral deal being reached. Still, Trump is unpredictable, and there are also many US companies that benefit from the current deal and are opposed to the US pulling the plug. If NAFTA is terminated, it’s likely the Canadian dollar will take a tumble.
The US government shutdown made the headlines for several days, but turned out to be little more than a nuisance, as the shutdown affected only one working day. On Monday, the Senate voted 266-150 to extend government funding until February 8. This stopgap measure will enable the government to provide services during that time, but the lawmakers will need to hammer out a longer-term agreement, as these short extensions are just band aid solutions. The Democrats held up a funding bill last week, in order to force the Republicans to the table over illegal immigration. The Republicans have promised to hold a vote on this issue, but many Democratic lawmakers remain skeptical that President Trump and the Republicans will deal in good faith over immigration.
