The Canadian dollar is higher after Canada and Mexico were both exempted indefinitely from Trump's tariffs on steel and aluminum. While Trump had threatened to implement tariffs against all trading partners, he avoided implementing tariffs on NAFTA countries. The Canadian dollar rallied on the announcement, and managed to strengthen against the US dollar. The loonie's strength is particularly remarkable considering that the US dollar has also strengthened against most major currencies in the last few days. Today, the Canadian dollar is benefiting from improving risk sentiment. After Trump hailed "great progress" with North Korea, commodity currencies including the Canadian dollar have rallied. Turning to economic data, Canadian housing starts were ahead of estimates, suggesting a positive outlook for the country's critical housing sector. Our short-term and medium-term outlook remains bearish.
The USD/CAD exchange rate is currently above 1.2870. The euro is down against the Canadian dollar, with EUR/CAD currently above 1.5840. The pound is down against the Canadian dollar, with GBP/CAD trading above 1.7780.
Looking at Canadian economic data, Ivey PMIs (59.6 vs. 56.3 expected) were ahead of consensus estimates. Merchandise trade (-$1.91b vs. -$2.50b expected) was also ahead of estimates. The Bank of Canada kept rates on hold, while outlining risks from ongoing trade negotiations. Housing starts (229.7k vs. 216.6k expected) and MoM building permits (5.6% vs. 1.3%) were ahead of expectations. The BoC's Lane suggested that the threat of a trade war could have "serious consequences" for business investment. Later today, we'll see changes in employment as well as the unemployment rate. Last week, December GDP growth missed estimates.
As the Canadian dollar weakens, we are downgrading the currency to bearish in the medium-term. Looking at a weekly chart, the currency is trading within normal conditions. This is based on various technical indicators on the Canadian dollar currency index.