Loonie looking vulnerable amid Trump tariff threats
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, it 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.