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In late January we wrote of the Canadian dollar move to a 14 week high of 1.2400, influenced primarily by a Bank of Canada rate increase to 1.25% on 17 January, and expectations of more to come. The good times continued to roll through February with the currency reaching a high of 1.2260.
While the BOC points to robust jobs numbers as its rationale for tightening, it remains cognizant of the U.S. administration’s desire to renegotiate NAFTA and the drag this would have on Canadian GDP. It only took a statement from President Trump last week stating his intention to impose tariffs on steel and aluminum of 25% and 10% respectively to weaken CAD back to just over 1.3000. Further illustrating the influence of political shocks on the currency, it only took a Trump Tweet on Monday that “….tariffs on steel and aluminum will only come off if a new and fair NAFTA agreement is signed”, strengthening CAD by a full big figure to 1.2900.
As we stated earlier, politics present a very large event risk (or opportunity as the case may be). Stay tuned...
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