Canada’s GDP declines, Canadian dollar lower

The Canadian dollar is steady on Friday. In the North American session, USD/CAD is trading at 1.4523, up 0.23% on the day.

The week wrapped up with Canada’s GDP, a report card on the strength of the economy. The November reading of -0.2% was a disappointment. This marked the first contraction of the year. There was better news in December, with an initial estimate of a 0.2% gain.

Will Trump impose 25% tariffs on Feb. 1?

US President Trump has barely warmed the chair in the Oval Office but he has managed to disrupt financial markets with his threat of tariffs against US trading partners. There was some relief in the market when Trump did not announce tariffs on his first day in office but he has reiterated that he will slap Canada and Mexico with 25% tariffs on Feb. 1. Canada and Mexico are the two largest trade partners of the US and a trade war would be damaging for all sides.

Canada would be particularly hit hard by US tariffs, as some 76% of Canada’s exports are sent to its southern neighbor. Bank of Canada Governor Macklem called the trade threat a “major new uncertainty” in December, even before Trump took office and Canada is bracing for a new, nasty reality if Trump makes good on his tariff threats.

The prospect of a trading war between Canada and the US is weighing on the Canadian dollar, which has plunged around 7% since October 1. The Bank of Canada lowered rates by a quarter point on Wednesday while the Federal Reserve maintained rates on the same day. With the BOC expected to make more cuts than the Fed this year, the US/Canada rate differential would widen even further and that could push the Canadian dollar lower.

USD/CAD Technical

• USD/CAD is testing resistance at 1.4493. Above, there is resistance at 1.4593
• There is support at 1.4390 and 1.4290

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