By Michael O’Neill

With less than two hours to go before his latest 50% tariffs on roughly US$20 billion of Canadian goods were due to take effect, Trump declared that the United States and Canada had a “DEAL!” and promptly announced that the tariffs would be paused for three days.

In typical Trump fashion, he is promoting and selling the announcement as another victory. He claimed Canada agreed to US demands on autos, dairy and alcohol. He embellished the announcement by broadly hinting that the twice-killed Keystone XL pipeline would be resurrected. The U.S. Trade Representative’s office tweeted that the deal includes “comprehensive market access for all American goods, economic security commitments, digital trade alignment.”

Except there was no deal.

All Prime Minister Carney said was there was “substantial progress.”

Leverage Posturing

Trump’s “Deal” announcement without actually having one is the textbook definition of leverage posturing. He is using public bravado and economic threats to pressure Canada into making real concessions.

The interpretation is that this is as much about leverage and political narrative as it is about trade. Trump needs to demonstrate to his domestic audience that his tariff strategy is working. Declaring a deal before the documents are finalized allows him to claim that Canada has been forced to bend, while retaining the 50% tariff threat for another 72 hours.

The tariff threat did not disappear; it is merely delayed, and the Canadian dollar rally was less about tariff deal claims and more about rising oil prices and traders rethinking the prospect for higher US interest rates.

“Oman Take a Look at My Life”

The oil market took center stage on Monday when Trump grabbed a microphone and threatened to bomb Oman, singing his version of the hit Neil Young tune. His comments underscored the uncertainty around oil and Middle East stability.

 If Trump is threatening an American ally of over 45 years and a country which it has maintained formal diplomatic and commercial ties with, who is next?

Trump’s words were enough to put a floor under West Texas Intermediate at $78.00/barrel. And Iran isn’t the only issue. Ukrainian drones have put a serious dent in Russia’s refining capacity while China has restricted exports of gasoline, diesel and jet fuel.

Even so, at the moment oil prices are binary and Trump controls the remote. The minute Trump suggests an Iran deal is imminent, that $70.00/barrel is a likely target.

Flipping the Switch

The FOMC minutes are hawkish. The Committee had a definite bias to raising interest rates at the July 29 meeting. But we already knew that. The key passage is that participants were quite explicit, saying “their interpretation of incoming information would be central to future deliberations, and many said tightening would be necessary if inflation did not decline.” Arguably that means the recent spate of soft inflation numbers takes a September rate hike off the table.

In previous years, the July FOMC minutes and contradictory data have typically primed the market for a market-moving speech by the Fed Chair at the annual Jackson Hole Symposium. That is unlikely to be the case this year due to Mr. Warsh’s stated aversion to forward guidance.

Signals vs Noise

The Canadian dollar will enter the coming week with plenty of trade-related headlines and tweets to digest but little of anything of substance to trade on. There is no such thing as a Trump deal; only a non-binding, fluid proclamation. The three-day tariff pause expires Saturday, the FOMC minutes are effectively useless, and Jackson Hole has lost its usual drama. It is the market equivalent of an old-fashioned TV test pattern: all noise, no picture.

That leaves the Loonie paddling in circles. The prospect for a new US-Canada trade deal leaves stale short-CAD speculative positions vulnerable, especially if USDCAD drops through major support at 1.3750. On the other hand, key US data including PCE price index could show inflation rising and kick off another round of September rate hike chatter, which would see USDCAD probing resistance in the 1.3950 area.

The reprieve is last minute, but the verdict is data dependent.