Mnuchin expects Canadian trade deal this week; USDCAD breaking lower

Summary:

• US-Canada trade in focus after US-Mexico announced deal

• Mnuchin expects agreement with Canada this week

• USDCAD falls to 11-week low beneath 1.30

Trade has come back into focus at the start of the week with the announcement of a trade deal between the US and Mexico being warmly welcomed as a possible harbinger of things to come. The news was warmly greeted by equity investors as US indices built on Friday’s gains to move higher with both the US500 and US100 reaching new record peaks. With that deal in the bag attention now turns elsewhere, with Canada, who were the other party in the NAFTA an obvious place to look.  

The Canadian dollar is rising across the board today with hopes rising that the country can strike a trade deal with the US. The largest gains can be seen against the JPY and USD, which are 0.5% and 0.4% respectively. Source: xStation

Along these lines, the US Treasury Secretary Steve Mnuchin has been speaking on CNBC this lunchtime and he appeared fairly upbeat as far as the prospects of an agreement with Canada are concerned. Selected comments from the speech are as follows:

• Expects to see trade agreement wrapped up this week

• This is the first major trade deal change

• Thinks they could get a deal through Congress with only Mexico

• Won’t speculate on issues with Canada-US

• We need better market access to China, this can’t be a 1-way transaction

• We’ve made progress since Juncker’s visit     

We pointed out last week that the longer term trend for the USDCAD may have turned lower with the lagging line joining price and the leading and signal lines in moving below the Ichimoku cloud on D1. Yesterday saw a large bearish candle drawn after an early foray higher was met with a firm rejection, and more importantly the market ended below the 1.2985 level. This had previously acted as support and the break and close below there paves the way for further downside with little really by the way of swing support until 1.2750.

After the break below the Ichimoku cloud was further confirmed with the lagging line moving beneath the body, price yesterday made another bearish move in closing below 1.2985 which opens up the possibility of larger declines. Source: xStation

It’s a quiet day of economic data with little of note due out from North America. The US July advance goods trade deficit is maybe the standout and it has fallen further to $-72.2B with the prior being revised marginally higher to $-67.9B (from $-68.3B previously). Against a consensus of $-68.6B this is a little on the low side and does actually represent the lowest reading since the March release. The fall came about due to both a fall in exports ($140B vs $141.9B prior) and increase in imports ($212.2B vs $210.3B prior) which together weighed on the net figure.