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The Forgotten North

Monday, April 3, 2017

Today's Spotlight Market

The most recent meeting of the Bank of Canada ("BOC") was held on March 1, and the BOC elected to leave interest rates unchanged at 0.5%. The BOC noted that inflation was higher in January, at 2.1%, but they felt that was a temporary increase related to the introduction of carbon taxes in Alberta and Ontario. Canadian 4th quarter GDP also came in higher at 2.6%.


Fundamentals

While relations with Mexico have garnered the most attention in trade talks from the Trump administration in the United States, Canada is also a member of the North American Free Trade Agreement ("NAFTA"). Since the introduction of NAFTA, Canada has been a major automobile manufacturer and NAFTA has spawned the creation of an interconnected web of automobile manufacturing and parts supply between Canada, the United States, and Mexico. After the failed attempt to reform health care in the US Congress, the Trump administration has indicated that their next priority will be tax reform. One such proposal is a border adjustment tax. While the primary focus may be Mexico, there are always the possibilities of spillover for Canada. The Bank of Canada may well remain cautious before making any interest rate cuts or hikes until the negotiations over US tax reform are completed.

Technical Notes

Turning to the 3-month continuation chart of Canadian Dollar futures, we see some very volatile trading over the past 3 months. There has been a recent reversal of the sharp bearish trend, and the slope of the faster moving 20-day SMA is now serving as support. 14-day RSI, at 43.68, is in bearish, although not yet oversold, territory.

Dale Jennings, Commodity Analyst