USD/CAD nears pre-war levels but the loonie is still in limbo
The market is increasingly looking beyond the war in Iran and that makes it a good time to look to future fundamentals.
An interesting spot to watch this year is USD/CAD as USMCA negotiations will be front and center shortly. The way that Trump handled the war is a reminder of his negotiating strategy, which is always about brinksmanship, leverage and threats. It's hard to imagine the trade deal will be any different.
I think there is going to be a deal because Republicans in Congress will demand one but the path to get there won't be clean and Canada will have to compromise on something.
When I zoom out, I can see a bearish case for the pair as it looks like a messy head-and-shoulders top that targets something in the 1.25 range.
The post-war fundamentals support that. Commodity prices remain elevated and Canada's Carney government has now secured a majority. The Prime Minister built last year's campaign around making it easier to build in Canada and I expect a series of measures around that in the coming months. The stability also ensures that foreign investors will take a long look at Canada.
The post-war landscape and Hormuz blockade may also lead to Europe and Asian investment in Canadian oil and gas. In the near term, we're likely to get a positive FID on Shell's second stage of LNG Canada. That's not really a needle mover because it's expected but it could put the focus on other investments.
As for the domestic economy, it's ok. Carney announced a 10-cent/liter discount on gasoline through September and that's a small boost to the consumer but the story of 2025 was just how strong Canadian spending was. That was something that was repeatedly emphasized by Canadian retailers, including Walmart. The latest airline data also shows Canadians continuing to travel (though not to the US) in a good sign of consumer health.
A big drag is housing, which is in a deep correction in Ontario and other parts of the country. No help is on the way from further rate cuts at this point but governments in Ontario and the Federal government are waiving sales tax on new homes, so that could at least boost construction activity.
I don't see any big drop off in the economy but I also don't see a path to 3% growth any time soon. So Canada should muddle along in relatively good health and that's probably enough to trip USD/CAD lower. The catalyst is more likely to be broader USD weakness, especially if fiscal conservatism makes a comeback after the midterms, and there's a push to cut the enormous US deficit.
This article was written by Adam Button at investinglive.com.提供:Investinglive RSS Breaking News Feed
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