The Canadian dollar is currently higher against all major currencies. CAD is the the strongest against the Japanese yen, the Australian dollar, and the British pound. Yesterday, the currency registered gains versus the US dollar following a Bloomberg news report suggesting that Trump has softened one of his key demands relating to auto content. While Canadian trade officials have been less optimistic on getting a deal done in two weeks, markets are betting on a higher probability of a deal following the news. The Canadian dollar is also benefiting from improving risk sentiment, and is strengthening alongside other "risk-on" assets such as equities and commodities.
Looking at the latest NAFTA update in more detail, the US is considering imposing the 85% content requirement on certain components (such as transmissions and engines), but not smaller parts such as nuts and bolts. NAFTA currently imposes a 62.5% North American content requirement in order to avoid tariffs. Today, no vehicle would meet the 85% North American auto content requirement as many components are sourced from overseas. Our short-term outlook on the Canadian dollar is neutral, while our medium-term outlook is bearish.
The USD/CAD exchange rate is currently above 1.2750. The euro is down against the Canadian dollar, with EUR/CAD currently above 1.5640. The pound is down against the Canadian dollar, with GBP/CAD trading above 1.7940.
This is a fairly light week for Canadian economic data. Markit manufacturing PMIs for March (55.7) met expectations. Later today, we’ll see the trade balance for February. On Friday, we’ll see housing starts and changes in employment for March. Last week, Canadian GDP growth figures for January missed expectations.
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.