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According to analysts at CitiBank, the recent weakness seen in the Canadian dollar weakness is driven by news of aluminum tariffs in the works with the US announcing it will place a 10% tariff on imports of Canadian raw aluminum. They add that the rising tensions between China and the US and investors’ attention to the upcoming US presidential election may increase further downward pressure on USD and support the CAD.

Key Quotes:

“We expect risk sentiment to be an important driver, but also think CAD has catching up to do from a fundamental perspective. WTI, and correspondingly Canada’s ToT, have found a bottom. We forecast a continued rebound here with WTI at 56$/bbl in 12m (3Q20). Additionally, economic surprises in Canada continue their positive trajectory. This may continue to support CAD.”

“USDCAD stopped at and turned off the 76.4% pullback level at 1.3362 and breached 1.3315-30 pointing to an extension towards 1.3500-1.3530, with short-term resistance at 1.3459.”