Market Analysis

Trump in Nashville

While US jobs data understandably took centre-stage on Friday, the stand-out figure arguably came out of Canada. Statistics Canada reported that 78,600 new positions were created in Canada in December. Economists polled by Reuters had only expected a rise of 1,000. In addition Canada’s jobless rate dropped to 5.7 per cent, a 41-year low.  The foreign exchange market reacted by pushing the Canadian dollar to a three-month high versus its US counterpart (USDCAD) below 1.2400 before the greenback staged a small rally into the North American close. At the same time, market expectations for another Bank of Canada (BOC) rate hike on January 17 rose and the yield on 2-year Canadian government paper hit 1.786 per cent, its highest point since June 2011. But traders might wish to recall that the next round of negotiations about the future of the North American Free Trade Agreement (NAFTA) will begin in Montreal on January 23. Traders might wonder whether the BOC would wish to hike rates in Canada just days before those NAFTA talks begin. The market could of course decide that the BOC will press ahead anyway.

Traders might also decide that the recent rise of the CAD versus the USD remains justified despite the uncertainty attached to the NAFTA renegotiations. After all there have been successive rounds of NAFTA talks in recent months. But, in the very short term, traders might at least wish to note that at 1430h in Nashville, Tennessee (2030h London time) on Monday, President Trump will be speaking at the American Farm Bureau Federation’s 99th Annual Convention, the first US President to do so since George H W Bush in 1992. Given the importance of NAFTA to US agriculture, there is every likelihood the US President will reference it, one way or another, in his speech.

Written by Neal Kimberley, External Currency Analyst.