Canadian dollar falls to lowest level in eight months.
TRUMP TARIFF THREATS HANG OVER CURRENCY
The Canadian dollar fell to its lowest level in eight months on Monday, and the downward trend appears likely to continue until U. S. President Donald Trump decides what he is going to do on trade.
As the seventh round of NAFTA negotiations took place in Mexico City last week, the Trump administration fired its latest trade salvo in the form of an announcement that it plans to introduce a 25 per cent tariff on imported steel, and a 10 per cent tariff on imported aluminum.
Since Canada is America’s largest source of imported steel and aluminum, and recent domestic economic data has fallen short of expectations, it should come as little surprise that the announcement hurt the loonie.
With Canada, China, Brazil, the European Union and others threatening retaliation, markets around the world have sold off on Trump’s threats, as a trade war could put an end to the coordinated global economic growth that has propelled stocks.
“President Trump’s plans to implement wide reaching tariffs on steel and aluminum, and openness to starting a trade war against pretty much everyone, continues to have far reaching ramifications on world markets,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.
Worries about cross- border commerce have re- emerged at a time when the Bank of Canada looks set to pursue a more cautious monetary policy versus the U. S. Federal Reserve, domestic oil prices remain stubbornly low and Canada faces a still-wide current account deficit.
The Canadian dollar has declined more than five per cent since its recent peak of US81.5 cents on Feb. 1.
On Monday, i t dipped below US77 cents, about the level at which it found support through the latter part of 2017. However, the Bank of Canada meeting on Wednesday is unlikely to give the loonie much of a boost.
“There’s not a whole lot to love about the currency right now,” said Robert Kavcic, senior economist at BMO Capital Markets, noting that Canada does not appear as though it will be exempt from looming tariffs. “This is doing no service to the loonie, which we’ll see how much longer these levels can hold.”
After a rate hike in January, Canadian economic data have softened, suggesting there is little reason for another raise from the central bank.
Fourth- quarter GDP fell short of the BoC’s 2.5- percent forecast by 0.8 percentage points, and after a disappointing home sales figure for January, the odds of another miss in Q1 have risen.
“This could prove to be a bit of snoozer, with the Bank likely to leave rates unchanged, and Governor Poloz now seemingly priding himself on limiting forward guidance,” Kavcic said.
David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates noted that the U. S. exports US$ 2- billion more worth of steel to Canada per year than the other way around.
“Canada is America’s best friend in every respect,” he said. “This is all so sad. And make no mistake, consider NAFTA dead.”
Rosenberg expects retaliation and an outright global trade war, noting that at least Russian President Vladimir Putin should be smiling as the U. S. launches its trade attack on NATO.