The Canadian Dollar (CAD) aka ‘Loonie’ slumped Monday on continuing trade issues between Canada and the US, and there is noting to keep the Loonie from extending its fall.
USDCAD, +0.0539% was among the worst performers Monday following the G-7 Summit that saw US President Donald Trump and US officials hammer Canadian Prime Minister Justin Trudeau and escalate tensions with allies over trade issues.
Late Friday, 1 USD last bought C$1.2987, up from C$1.2927.
Mr. Trudeau criticized tariffs on steel and aluminum imports that the U.S. put into effect at the beginning of the month.
They will hit Canada hard, as it is the biggest source of metals imports to the US
Shortly after, President Trump withdrew his support for the G-7 communiqué, which stressed the importance of a rule-based international trading system, and attacked Mr. Trudeau on Twitter. US officials escalated the attacks on Trudeau.
“Based on Justin’s false statements at his news conference, and the fact that Canada is charging massive Tariffs to our US farmers, workers and companies, I have instructed our US Reps not to endorse the Communique as we look at Tariffs on automobiles flooding the U.S. Market!”– President Trump Tweeted from Air Force One as he jetted off to the Singapore Summit on NKorean peace.
Trump Vs Trudeau reinforces our view that trade news is bad for the Canadian Dollar.
US-Canada relations have been strained by the renegotiation of the North American Free Trade Agreement (NADTA) that ties the 2 nations and Mexico, together.
The talks that began last year in August added a heavy amount of headline risk to the Canadian currency and the Mexican peso USDMXN.
Negotiations were expected to wrap up in May to ensure a deal-in-principle ahead of Mexico’s 1 July presidential election and the US November midterms.
But as no deal came to fruition and the metals tariffs came into effect instead.
The Loonie has suffered, shedding 1.5% over the past month.
The NAFTA 2.0 negotiations are now expected to last until Y 2019, leaving room for more headline risk.
Forex investors do not know how to trade the Loonie anymore, because it just moves on headlines.
Now the most Loonie-positive outcome would still be a deal-in-principle. But even then, it is unlikely an agreement cold be pushed through each country’s legislature before November, meaning a fully ratified agreement might not be seen until Y 2019 at the earliest.
Should the US trigger Article 2205 to begin a formal withdrawal from the trade pact it could change the trajectory of the Bank of Canada’s monetary policy path.
The BoC has been gradually raising rates, last upping them in January. Last month, the BOC’s policy update sounded notably upbeat, strengthening expectations for a July rate move.
BoC Deputy Gov. Lynn Patterson will deliver a speech on 18 June, which will be closely watched for policy clues.