Canadian Dollar Gains on ‘Absolutely Amazing’ NAFTA Talks, Higher Oil Prices

The Canadian dollar is rallying to start the trading week, benefiting from reported progress in North American Free Trade Agreement (NAFTA) negotiations and higher energy prices. The loonie may tumble later in the week as the US central bank completes its Federal Open Market Committee (FOMC) policy meeting that could signal a September rate hike.

Speaking in an interview with Fox News, White House Council of Economic Advisers Chairman Kevin Hassett said NAFTA talks with Mexico and Canada are “absolutely amazing,” adding that a deal could happen as early as fall. He did note that he has not been a negotiator over the past year, but he confirmed that his colleagues a part of the process are enthusiastic about a deal coming soon.

Hassett echoed the comments of US Trade Representative Robert Lighthizer who told Congress that a NAFTA deal could occur next month. President Donald Trump has also expressed optimism, telling reporters that the US government is making incredible progress in talks with Mexico, which had some suggesting that the president is working on a bilateral agreement rather than a multilateral pact. Treasury Secretary Steven Mnuchin noted that he hopes a trade arrangement can happen soon.

Whatever the case might be, this is a boon for the loonie because there have been very little updates on NAFTA talks. With Washington engaged in a bitter trade dispute with Beijing, it appeared that NAFTA had taken a backseat. The Canadian dollar could now find some direction over the coming weeks.

The loonie continues to benefit from higher energy prices. September West Texas Intermediate (WTI) crude oil futures advanced $1.49, or 2.17%, to $70.18 per barrel. September Brent crude futures dipped $0.29, or 0.41%, to $72.61 a barrel. September natural gas futures jumped $0.041, or 1.75%, to $2.736 per million British thermal units (btu).

The Canadian dollar’s recent string of gains may come to an end after the Federal Reserve completes its two-day policy meeting on Wednesday. The central bank is not expected to raise interest rates, but it may provide investors hints if Fed Chair Jerome Powell will pull the trigger on a rate hike in September and possibly December.

The US Dollar Index plunged 0.36% to 94.32, but it is still up 2.4% year-to-date.

Investors appear to be bullish on the loonie as hedge fund managers and money managers slashed their net short positions, notes the US Commodity Futures Trading Commission (CFTC).

Officials from Canada, Japan, Mexico, South Korea, and the European Union (EU) will gather in Geneva this week to discuss how they will respond to President Trump and his proposed tariffs on US imports of automobile and car parts. Last week, Trump met with EU Commission President Jean-Claude Juncker, who agreed to relaxed trade tensions, including by avoiding new tariffs and buying more US soybeans.

Canadian government bonds fell on Monday: the two-year yield dipped to 2.073% and the 10-year yield dropped to 2.334%.

The USD/CAD currency pair tumbled 0.24% to 1.3025, from an opening of 1.3056. The EUR/CAD currency pair edged up 0.2% to 1.5249, from an opening of 1.5218.

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