Canadian Dollar Tumbles

Daily Analysis - 25/04/2017

Canadian Currency Slides as US Plans to Impose Lumber Tariff

The Canadian dollar slumped to its lowest since December after the US announced late Monday that it planned to impose tariffs on exports of softwood lumber from its northern neighbour. Canada is the world's fourth-largest forest product exporter, indicating more headwinds to come for the economy.

Trump Takes Aim at Canada

US Commerce Secretary Wilbur Ross said his agency will impose anti-subsidy tariffs averaging around 20.00% on softwood lumber imports from Canada. Speaking to Reuters, Ross said the proposed duties would affect $5 billion worth of lumber imports from the country.

US competitors have been arguing that Canadian timber producers, who use public lands, receive subsidies from their government, which is unavailable to US growers, most of whom use private land. The US imported a total of $325 billion in goods and services from Canada in 2015, according to Commerce Department data. USDCAD has been rallying since the announcement on greater than average volumes after breaking above the strong resistance around 1.3530. The pair was last seen trending around 1.3560, marking the highest point since December 28.

US Expansion Tapered in March

The Chicago Federal Reserve’s National Activity Index eased to 0.08 in March from 0.27 in February, well below market expectations of a figure close to 0.30. Employment-linked indicators were the biggest drawdown on the index, contributing a mere 0.02 last month, down from 0.20 in February. The less volatile three-month moving average of the index, which is slightly smoother, slid from 0.16 in February to 0.03 in March.

The three-month average has managed to remain positive for the fourth straight month. The National Activity Index is a weighted average of 85 economic indicators. A reading below zero indicates below trend growth, while a three-month average below -0.70 suggests an economic recession. After opening the week higher, Dow Jones June futures are extending the prior session’s gains on Tuesday, and were last seen trading above 20750.

UK Manufacturing Orders Below Forecast

British factories were hit by a dip in orders during April according to a leading survey, suggesting the shine may be coming off a sector that was riding high on the falling value of the pound. The Confederation of British Industry's monthly balance of factory output fell to 4 in April from 8 in March, missing the consensus forecast of 5.

The current month’s reading was the weakest since December and was coupled with a loss in business confidence alongside a drop in export orders. Economists noted that the challenges facing the manufacturing sector are mounting and are likely to intensify through summer. The CBI survey of nearly 400 factories was conducted before UK Prime Minister Theresa May announced her decision to hold national election on June 8^th. GBPUSD ahs been stuck within a sideways range since the past one week, and was last trading around 1.27800.

Mexico Records Tepid Economic Growth

Economic activity in Mexico expanded by 1.00% in February on an annualized basis, following a 3.00% rise in January, narrowly beating market expectations of 0.80%. February growth figures were the weakest in nearly a year after services sector momentum fell from 4.10% expansion in January to just a 2.30% increase in February, while industrial activity shrank by -1.70% after contracting -0.10% a month earlier.

Primary activities witnessed the biggest slowdown from 12.80% in January to 3.60% in February. On a seasonally adjusted basis, economic activity grew by a modest 0.10% in February compared to the 0.30% reported back in January. USDMXN has bounced off a one week low in early Tuesday trade with the pair currently hovering around the 18.7230-mark, with 18.8870 likely to act as strong resistance.