EBC Markets Briefing | Loonie consolidates as Trump declined to extend USMCA

The loonie steadied on Monday after Independence Day holiday is over. The White House has decided not to renew its trilateral trade pact with Canada and Mexico, instead opting to conduct annual reviews of the treaty.

A Reuters poll indicates the currency will strengthen less than previously anticipated over the coming year due to uncertainties in USMCA negotiations weighing on the domestic economy.

This diminished growth outlook reduces the likelihood of interest rate hikes from the BOC, reflecting a more cautious economic forecast. Canada has slipped into a technical recession.

Speculators have raised their bearish bets on the currency to the highest level since December. Oil recorded its worst quarter since early 2020 in the 2nd quarter on US softer stance on Iran.

Swap markets have priced in just 10-bp tightening for the year, while Fed Chairman Warsh explicitly warned that advocates for a looser monetary policy would be disappointed.

Canada announced plans to build an oil pipeline from Alberta to the Pacific coast, which will boost export capacity to Asia for the world's fourth-largest oil producer.

The Canadian dollar maintained a strong bearish trend since early May, with signs of a RSI divergence. EBC Financial Group analyst sees more gains going forward until 1.3948 per dollar.

Asset recap

As of market close on 3 July, among EBC major products, the Japan Nikkei 225 Index led gains as foreign investors pulled record amounts of money out of the Korean stock market at a record pace and funnelled it into Japan.

Spot gold prices rose, putting the precious metal on track for its first weekly gain in five weeks after coming under sustained pressure this year. Still concerns about a hawkish turn among central banks is lingering.

EBC Financial Group Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC Global Financial Collaboration or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.