USD/CAD continues to run after breaking the November high

§ 01 Executive Snapshot

• What: The Canadian dollar is reaching new 14-month lows against the US dollar, following a significant break of November highs.
• Who: Key players include the US Federal Reserve, Canadian consumers, and the oil market.
• Why it matters: This trend indicates a potential technical recession in Canada and highlights the ongoing impact of commodity prices and USMCA negotiations on the Canadian economy.

§ 02 Key Developments

• The US dollar increased by 33 pips against the Canadian dollar, reaching 1.4177, marking the third consecutive week of gains.
• WTI crude oil prices dropped nearly $8 this week, returning to early-March levels due to anticipated resumption of oil flows through the Strait of Hormuz.
• Canadian retail sales rose by 0.5%, primarily driven by gasoline sales, while excluding gasoline and autos, sales fell by 0.7%, indicating a squeeze on discretionary spending.

§ 03 Strategic Context

• Canada is experiencing a reversal in population growth following a post-COVID boom, with a reported decline of 0.45% in Q1 as temporary and student visas expired.
• The country's GDP has declined in both Q4 and Q1, leading to a technical recession, which is compounded by ongoing uncertainties surrounding the USMCA negotiations.

§ 04 Strategic Implications

• The immediate impact is a weakened Canadian dollar, which could lead to reduced consumer confidence and spending.
• Long-term, if the political and economic landscape stabilizes by year-end, there could be a potential reversal in the Canadian currency's fortunes.

§ 05 Risks & Constraints

• Potential risks include regulatory uncertainties stemming from USMCA negotiations and the impact of ongoing commodity price volatility on the Canadian economy.
• Competition from a strengthening US dollar and geopolitical tensions may further complicate Canada's economic recovery.

§ 06 Watchlist / Forward Signals

• Upcoming Canadian CPI data for May, with April's reading at +2.8%, will be crucial to gauge inflation trends.
• Any developments regarding USMCA negotiations under the Trump administration will signal potential shifts in market sentiment towards the Canadian dollar.