The Canadian dollar paired with the US currency is now using any more or less significant reason for its weakening. The USDCAD pair resumed the upward trend in early February, when Brent crude oil began to slide down from its price peak ($69 per barrel). It looked quite logical, especially against the backdrop of the disastrous sixth stage of negotiations on amending the North American Free Trade Agreement. But recently there has been a certain dissociation: the strengthening of the oil does not strengthen the position of the Canadian, and at the slightest drop in quotes, "loonie" becomes cheaper at an accelerated pace.
Surely every trader faced a situation, where a particular currency behaves strangely or even anomalously, contradicting the fundamental background. Here and now we observe some nervousness of the Canadian currency, whose behavior often does not fit into the framework of the general trend. Meanwhile, the pound was behaving similarly in the run-up to the referendums on the Scottish issue and about the fate of Brexit.
Canada now also faces a choice. True, this choice will not be made by ordinary Canadians, but by the government of the country - and the question in this case is not political in nature, but on foreign trade. On February 25, the seventh, decisive round of trilateral talks between the representatives of Mexico, the US and Canada about the fate of the NAFTA started in Mexico City. All previous attempts to reach an agreement ended in a fiasco: the Americans firmly stood on their own terms, which were unacceptable to the other participants in the deal.
At the end of last year, it became clear that there was little chance of resuscitation of the NAFTA - and at the same time we heard the first statements by officials about the probability of abandonment of the agreement. Fuel was added to the fire when Donald Trump talked in January regarding the possibility of a one-way exit from the deal. The Canadian dollar instantly reacted to this statement by a massive decline. After a while, the US president changed his tone on the issue, giving the trilateral group the opportunity to continue negotiations.
However, the next meeting in Montreal did not bring success: according to the Minister for Foreign Affairs of Canada, the main disagreements arose in the automotive industry, and on this point the parties could not come to any compromise. The failure of the January meeting was reflected in the statements of the top officials of the state: the prime minister of Canada stated that he would not agree to a "bad deal", and the president of Mexico even canceled his visit to the United States. Clearly, Trump's position "America first" makes it very difficult to find a mutually beneficial compromise.
Nevertheless, the parties are not giving up any hope for an updated deal. The seventh stage of the talks, which will end on March 5, is deemed to be significant and decisive. The fact is that on July 1, Mexico will hold presidential elections (as well as the election of 500 members of the Congress and 128 members of the Senate), so the negotiators originally agreed to complete the dialogue before the election campaign began.
But here it's not even in deadline. Now there are rumors on the market that this round will end with a breakthrough in the negotiations and even the conclusion of a new agreement. This is written by American and Canadian media with reference to anonymous, but "reliable" sources. Indirectly, this is confirmed by the fact that the representative of the American side unexpectedly returned yesterday from Mexico to Washington, where he met with key leaders of the US automotive industry (in particular, General Motors and Ford).
This fact sounds reassuring, given the positive rumors surrounding the negotiation process. It can be recalled that at the moment under the terms of the current agreement, 62% of the car must be of American origin, Canada or Mexico, so as not to be subject to tariffs. The White House plans to increase this threshold to 85%, while the remaining NAFTA member countries want to leave the previous conditions.
According to unconfirmed information, the US can make concessions in this part of the deal. But, despite such optimistic rumors and speculation, the market evaluates them critically. Traders are taught by bitter experience: such insights were also in the period of the previous stages of negotiations, but the strong-willed stance of Americans and Trump's willingness to leave NAFTA led to a deadlock.
It is also worth noting that if the seventh round of talks repeats the fate of its predecessors, then the free trade zone will surely cease to exist. And this fact, in turn, will affect the position of the Bank of Canada regarding the prospects for further tightening of monetary policy. The Canadian regulator has repeatedly focused its attention on this issue, so a possible break in the NAFTA will pause the process of raising the rate.
Thus, the USDCAD pair in the near future (at least until March 5) will be guided by rumors related to the process of negotiations in Mexico City. If by the end of this week it becomes clear that all the attempts made have been in vain, the Canadian dollar will significantly fall in price throughout the market, and first of all paired with the US currency (against the background of the relatively tight commentary of the Fed Chairman in the Senate). The remaining fundamental factors will be of secondary importance.
From the technical point of view, priority is also maintained over the upward movement. First, Ichimoku indicator Kinko Hyo formed a bullish "Line Parade" signal. Secondly, the pair is traded between the middle and top lines of the Bollinger Bands indicator, which also indicates an upward movement. Third, the price is located above the cloud Kumo indicator Ichimoku Kinko Hyo. Thus, the main indicators indicate the advantage of the upward direction. The support level is the upper limit of the Kumo cloud and the price is 1.2600. And the resistance level (the goal of the northern movement) is the upper line of the Bollinger Bands indicator and the mark of 1.2820.
