(24 OCTOBER 2018)DAILY MARKET BRIEF 2:Bank of Canada good to go as trade issues easing

(24 OCTOBER 2018)DAILY MARKET BRIEF 2:Bank of Canada good to go as trade issues easing

24 October 2018, 14:45
Jiming Huang
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Trade issues will soon be merely a bad memory for Canadian companies, although issues remain. The new trilateral trade framework agreed by both US Trade Representative Robert Lighthizer and Canadian Foreign Affairs Minister Chrystia Freeland called the United States-Mexico-Canada agreement (USMCA), to replace the 24-year old NAFTA agreement, is expected to be signed by end-November 2018. The relief in trade tensions give the BoC further flexibility in managing the monetary policy of the country.

Indeed, despite weaker headline inflation figures in September (y/y 2.20%, m/m -0.40%), market participants will be expecting a rise of the key rate by 25 bps from today’s MPC, putting the gauge at 1.75%, the third rise in 2018. Inflation remains slightly above 2% BoC’s target while the positive economic outlook of the Canadian economy, including strong economic growth and optimistic business sentiment, justify a more restrictive monetary policy.

However, trade discussions between all three trading partners is not over. Despite the arrangement found on topics such as automobile export caps to the US or the eligibility for US farmers to export dairy products to Canada, issues relating to Trump’s steel and aluminum tariffs remain - and Canada and Mexico are willing to remove them.
Accordingly, we expect USD/CAD to remain under pressure following the BoC announcement, heading towards 1.3030.

By Vincent Mivelaz

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