Canada Markets

Canadian Dollar Volatile as We Enter a New World

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The Canadian dollar electronic trade was volatile on Wednesday, forming an outside-day trading bar after trading over a 148-basis-point range. Wednesday's low reached the lowest level seen since late February, while testing the 50% retracement of the move from the contract's January low to its April high. The lower study shows noncommercial traders holding the largest net-short futures position held since mid-March. (DTN graphic by Scott R Kemper)

Americans have spoken and the Donald Trump factor has had an impact on commodities and currency pricing on Wednesday, a situation that is expected to have a lasting impact.

"Uncertainty about who is going to be president has now been replaced with risk and that will hit every asset class, including commodities," stated Neil Williams, chief economist at Hermes Investment Management and reported by Dow Jones.

This uncertainty can be seen on both sides of the Canada/United States border. One example is Trump's open disdain for trade deals which remains an area of uncertainty for U.S. farmers who rely heavily on export trade. While Trump has expressed his dislike for trade deals such as the Trans-Pacific Partnership, Wesley Spurlock, president of the National Corn Growers in the U.S., was quotes in a Dow Jones story as saying "TPP is the one thing Congress can do right now to increase farm income, generate moderate economic activity and promote job growth."

Uncertainty also remains a factor in Canada, while cautious optimism may be the sentiment for some time to come. Saskatchewan Premier Brad Wall may have hit the nail on the head with his morning statement on his Facebook page: "Canada must now work with the new president in the best interests of both of our great countries. President-elect Trump has made some election promises that could be positive for Canada, and others that are concerning."

Some of those concerns, as outlined by special reports released by groups such as BMO Capital Markets and the CME include:

-- The President can unilaterally withdraw from trade deals, including NAFTA, which Trump refers to as the "worst trade deal in history." This could result in negative impacts to existing cross-border supply chains. As well, should the U.S. fail to ratify the TPP, the future of the deal could remain in question.

-- Proposed U.S. tax cuts could affect the competitiveness of Canadian business relative to U.S. competitors, a situation which could be further compounded given the pending implementation of carbon tax schemes in Canada.

-- The Chief Economist of the CME Group has stated that a Fed rate hike is likely in December and may be seen three or more times in 2017, a move that may place short-term pressure on the loonie but longer-term, could force Canadian interest rates higher.

The Canadian dollar went on a roller-coaster ride Wednesday which started with heavy selling in the overnight electronic trade and saw the Canadian dollar lose as much as 117 basis points before going higher. Today's move saw the loonie reach its lowest level since late February, moving below the 50% retracement of the move from the January low to the April high found at $.74285 CAD/USD, only to rebound back for a close that should be near the mid-point of today's range. A further move below this support level could result in a move to $.72936 CAD/USD, the 61.8% retracement of the same uptrend.

The histogram in the lower study points to the Canadian dollar falling out of favor with investors, who have held a bearish net-short futures position for the past six weeks. The latest CFTC data as of Nov. 1 shows this group holding a net-short futures position of 15,960 contracts, the largest net-short position held since March 15.

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