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Loonie Gains Strength Ahead of Powell’s First Rate Decision

Published March 21, 2018
  • The greenback fell from three-week highs today on news that the US has dropped the contentious auto-content proposal in NAFTA talks. The US agreed to drop their demand that all Canadian and Mexican vehicles exported to the US contain at least 50% US parts. While the dispute resolution and Canada’s progressive policies still hold NAFTA back, this was one of the bigger issues remaining on the table and one could argue deserves more follow through in the currency.  Although NAFTA looks rosier, it is far from over and uncertainty on trade issues has already done some damage on investment into Canada.
  • The loonie caught some additional strength as traders took some profits before the Federal Reserve’s first expected rate rise of 2018. Focus is on whether the Fed will indicate three or four increases this year. USD/CAD is down ~0.72% on the day trading around 1.2980 at time of writing.
  • Jerome Powell will head his first monetary policy committee meeting today at 2pm EST. Everyone is curious to see what tone he will take. He could choose to maintain the course charted by Janet Yellen on the pace of normalizing monetary policy. Powell will have to take into account a number of major Trump administration initiatives, including taxation reform and protectionist measures. He will also have to consider the wage increases seen in December and their possible effect on inflation.
  • Crude oil prices were hovering at multi-week highs today, with potential supply disruptions due to tensions in the Middle-East and upbeat US stockpile data continuing to support. Brent crude is up ~1.44% on the day with WTI crude up ~1.26% and are trading at $67.63 and $64.34/barrel, respectively.