USD/CAD Canadian Dollar Higher U.S. Tax Worries Hurt USD

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Includes: BNO, CNDA, DBO, DNO, DTO, DWT, EWC, EWCS, FCAN, FXC, HEWC, OIL, OILK, OILX, OLEM, OLO, QCAN, SCO, SZO, UCO, UDN, USDU, USL, USO, USOI, UUP, UWT, WTID, WTIU
by: Alfonso Esparza

The Canadian dollar rose on Thursday as the US senators are paring back some of the corporate tax cuts in an effort to keep the impact of the proposed bill under $1.5 trillion. Republican senators are pushing back the timelines on reducing the corporate tax rate until 2019 and will water down the original plan introduced by the Trump Administration. Treasury Secretary Steven Mnuchin has already said that a delay is better than a longer phase in. The amount of differences between the Senate proposal and the one working its way through the House of representatives is considerable and increases the chances of the tax overhaul not being a reality in 2017.

The political tide could also be changing in the United States ahead of next year's primaries. Regional elections have racked important wins for the Democrats, with a more divided congress forecasted in the future. If the Administration has not been able to pass legislation with majorities, it would be almost impossible having to seek bipartisan support.

Trade talks are going into the midnight hour in Vietnam, with comments from the Japanese and Mexican teams that a deal is close. Japan claims that there has been a ministerial agreement, but the Canadian Trade Minister has said on Twitter that an agreement has not been reached. It seems that details still need to be ironed out, but there seems to have been progress made to bring the TPP into fruition. The United States left the Trans Pacific Partnership as one of the first executive orders of President Trump.

usdcad Canadian dollar graph, November 9, 2017

The USD/CAD lost 0.42 percent in the past 24 hours. The currency pair is trading at 1.2674 after concerns with the US tax reform plans have taken the wind out of the US dollar's sails. Oil continues to support the rise of the loonie, which has seen the Canadian currency appreciate 0.60 percent this week.

Canadian new home prices rose in September. Vancouver was the big winner, while Toronto remains unchanged in a report Statistics Canada published Thursday. Mortgage rule changes and regulation to reduce real estate speculation by foreign buyers has cooled one of the hottest markets in the globe. The weakness of the Canadian dollar after the drop in oil prices and the overall stability of the economy made urban destinations rise as investment opportunities. Prices rose, and with it levels of household debt amongst Canadians, sending warning signs to financial institutions and rating agencies. The Bank of Canada (BoC) has hiked rates twice in 2017 and continues to monitor debt levels, with a possible rate lift in the first quarter of 2018 if inflation continues to rise.

West Texas Intermediate graph

Energy prices rose above the $57 price level, only to return to $56.95 on the back of increasing rumours of a possible coronation of crown prince Mohammed bin Salman if his 81-year-old father abdicates. The uncertainty of what the corruption arrests real impact will have on the world's second-largest producer of crude and de facto leader of the Organization of the Petroleum Exporting Countries (OPEC) has crude prices rising. With the November 30 meeting between oil producers who agreed to cut production fast approaching, the existence of the OPEC is also at stake, as Saudi Arabia has raised the levels of animosity towards Iran and its perceived allies.

The pact to reduce supply has been the main driver adding stability to the energy market in the past two years. The architect of the agreement has been Saudi Arabia, but it also bears remembering that their plan to drive US shale producers out of business by over-drilling is what led to the spectacular crash in oil prices in the first place.

At the moment, oil rig counts in the US have not been rising as fast as oil prices. Temporary weather factors have kept US supply down, although last week's surprise crude inventory numbers could be the beginning of a US-led rise in supply.

Market events to watch this week:

Friday, November 10
5:30 am GBP Manufacturing Production m/m

*All times EDT

For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar.