Briefing highlights
- Trade woes hit loonie, peso
- Analysts still expect rate hike
- Markets at a glance
- ‘Bond storm’ subsides, oil up
- Bitcoin plunges
- Cogeco raises dividend
Developments like this encapsulate the headline risk that will linger through the next round of NAFTA negotiations
Sue Trinh, Royal Bank of Canada
The Canadian dollar is trading shy of 80 cents (U.S.) today, laid low by the heightened trade uncertainty roiling currencies.
But observers don't think it's enough to sway the Bank of Canada from what they project will be a rate hike next week.
As The Globe and Mail's Steven Chase, Adrian Morrow and Greg Keenan report, the Canadian government thinks President Donald Trump may well move to kill the North American free-trade agreement, though Ottawa still plans to sit at the troubled increasingly troubled bargaining table.
At the same time, Canada has launched a far-reaching complaint against the U.S. at the World Trade Organization.
Wednesday's developments knocked several stocks and the loonie, which lost more than half a penny, as The Globe and Mail's David Berman writes.
"CAD and MXN languished at the bottom of the leaderboard, selling off 1 per cent on Reuters headlines indicating that Canada was increasingly convinced that President Trump would shortly announce that the U.S. is pulling out of NAFTA," said Sue Trinh, Royal Bank of Canada's head of Asia foreign exchange strategy in New York, referring to the loonie and peso by their symbols.
"Although a White House official later stated that there was no change in Trump's position on NAFTA, developments like this encapsulate the headline risk that will linger through the next round of NAFTA negotiations on Jan. 23-28 in Montreal."
As Ms. Trinh noted, this isn't going away, no matter what the White House says about the views of Mr. Trump, who says a fair deal or no deal.
"No change in Trump's position on NAFTA still means he's not a fan - and that's the risk investors should be mindful of when it comes to the loonie," said Bipan Rai, executive director of macro strategy at CIBC World Markets.
"There's been lots of complacency on NAFTA in regards to the way the loonie has been trading for several months, and we expected the associated premium to start rising into the next round of negotiations in Montreal."
By that, he meant the premium on the U.S. dollar versus the loonie.
The Canadian dollar has had an interesting ride over the past few days, shooting higher to almost 81 cents after a strong Statistics Canada jobs report Friday that ramped up speculation of a rate hike next week.
Bank of Canada senior deputy governor Carolyn Wilkins and governor Stephen Poloz
Globe and Mail Update
Many observers expect Bank of Canada governor Stephen Poloz, senior deputy Carolyn Wilkins and their colleagues to raise their benchmark overnight rate by one-quarter of a percentage point to 1.25 per cent on Wednesday.
Mr. Rai, Ms. Trinh and others don't think the latest news will change that, but the loonie could still suffer, nonetheless.
"The C$ market should (finally) start taking notice and cheapen once the bank meeting is out of the way," Mr. Rai said, adding that killing NAFTA wouldn't be bullish for the U.S. dollar against other currencies, for that matter.
"Our preferred method of expressing loonie weakness would be to buy the EUR and JPY against it," he said, referring to the euro and yen.
Take note of the fact, too, that the Canadian dollar is on the back foot despite the gain in oil prices, which have a traditional correlation. Of late, though, interest rate speculation has been the determining factor. Until Wednesday, of course, when trade uncertainty ramped up.
Trade angst is only one of the things that have rocked markets.
"Headlines related to China, NAFTA and global bond markets have whipsawed global currencies over the past two days. Some have been denied, most lack context and markets have started to settle down," said Mark McCormick, North American head of foreign exchange strategy at TD Securities.
Read more
- David Berman: Loonie, TSX hit by reports U.S. may pull out of NAFTA
- Steven Chase, Adrian Morrow, Greg Keenan: Canada mounts WTO challenge amid worries of U.S. NAFTA split
- Barrie McKenna: No more Mr. Nice Guy: Ottawa invokes Plan B on trade with the U.S.
- Outlook 2018: Loonie (lame, so skip Florida), rates (pain, so pay down debts instead)
- Outlook 2018: Tapped out, crapped out and hung out: Canada’s economy, oil and NAFTA
- David Berman: The best way investors can shield themselves from the fallout of a NAFTA exit
Markets at a glance
The "bond storm" has subsided, as Kit Juckes of Société Générale put it.
"There's been a lot of discussion in the last few days about the likelihood of the start of a bond bear market where prices slide back sharply and push yields higher," said CMC Markets chief analyst Michael Hewson.
"Looking past the headlines it's always a good idea if you are a trader is to trade what you see, and for the moment we remain in a downward trend for yields though we could well start to push higher if we see evidence of inflation making a comeback."
As for oil, Brent crude is "knocking on the door of levels not seen since 2015, as the rally continues to defy the naysayers," said IG chief market analyst Chris Beauchamp.
"But OPEC's fears about U.S. shale storming back in and ruining the party are entirely justified. Soon perhaps, we'll have to talk about a need to boost output to keep market share, which would at least help consumers around the globe manage their petrol spend."
Read more
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