In the past few weeks, the USD/CAD pair has been very volatile because of the ongoing trade negotiations. As you recall, a few weeks ago, the United States made a deal with Mexico. The deal was very surprising because of the tensions between the US president and Mexico. The president has blamed Mexico for stealing American jobs and for allowing immigrants from South America flow into the US.
The US-Mexico deal caught Canada off guard. This is because Canada has always been a better American ally than Mexico. Its labour, wages, and quality standards is almost similar to that of Mexico. In addition, the US has a trade surplus with Canada. In trade negotiations, Trump focuses mostly on the trade deficit.
The deal increased pressure on Canada to make a deal but the differences were high. The US team wanted access to Canada’s dairy industry. This industry is sensitive issue in Canada, especially in Quebec. Quebec is a major province in the country and is the biggest producer of milk. To protect the milk industry, the country has placed a policy known as Supply Management. This makes the milk Canadians consume very expensive because of high tariffs from imports. As such, most Canadians don’t love the Supply Management. However, Quebec has the most members of parliament in Canada. This makes any deal that affects the farmers very difficult.
On Sunday, it was reported that the two countries had found a compromise. The new deal will be called USMCA (United States – Mexico – Canada Agreement). This led to a sharp increase in the Canadian dollar as shown below. After the jump, the pair started moving in the sideways direction as traders wait for the next movements. At this stage, you could wait before buying or shorting the pair.
