The Canadian dollar is on course for its worst weekly performance in more than a year as traders reassess their exposure to the currency in response to new US trade tariffs, slower economic growth and a softer oil price.
At the end of the Asian business week and with much of Friday’s European session already in the books, traders were exchanging 1.289 Canadian dollars per US dollar. A depreciation of 2% from a week earlier marked the Canadian dollar’s worst week against its US counterpart since February 2017.
Meanwhile, the Canadian dollar was well and truly hammered against the Japanese yen, having lost 3.5% of its value to rates near 81.9 yen – a nine-month low.
Canada’s currency also fell to a two-year low against the euro. A 2.1% depreciation meant that the euro fetched 1.586 Canadian dollars.
The first two days of March have shown no letup in what has been a rapid and significant turn in Canadian dollar sentiment. The currency entered 2018 on a high after November and December’s spectacular Canadian employment numbers and having piggybacked off a striking year-end rally in the prices of oil and other commodities; however, the “loonie” was the worst performing major currency in February. Perhaps unsurprisingly, those same drivers of Canadian dollar strength were a part-cause of its demise. The five-month oil rally stalled in February and jobs growth collapsed.
Now, at the worst possible time, Canada is seething, and its currency left reeling, from President Donald Trump’s announcement that tariffs will be imposed on all of the US’ steel and aluminium imports. Given that Canada is the largest supplier of steel and aluminium to the US and, more broadly, sends 80% of its exports south of the border, the terms of trade between the two countries are vitally important to Canada’s economic well-being.
Trump said via a tweet on Thursday that the US had been “decimated by unfair trade and bad policy” and announced plans for 25% and 10% tariffs on steel and aluminium imports respectively – tariffs designed to boost US manufacturers.
Canada, the EU, Britain, Australia, Brazil and Mexico have all expressed anger at Washington following the announcement. In a statement, Canadian Foreign Minister Chrystia Freeland described the tariffs as “absolutely unacceptable” and said that “responsive measures” would be taken to defend Canada’s trade interests.
For FX watchers, the news is considerably more bearish for the Canadian dollar than it is for, let’s say, the euro or Australian dollar, and not only because, as already mentioned, Canada is the US’ largest supplier of steel and aluminium; there are much broader trade ramifications for Canada (and Mexico) that will not be experienced by those other countries.
Together with Mexico, Canada is already involved in complex negotiations with the US over a remodelling of NAFTA – an all-encompassing trade agreement between the three countries that has been in place since 1994. Needless to say, these tariffs, which have been described as “the opening salvo in a trade war” by a senior fellow at the Chicago Council on Global Affairs, are unlikely to bode well for ongoing NAFTA negotiations.
With that said, the Mexican peso was also feeling the pinch on Friday as it weakened to 19 pesos per US dollar, 23.35 per euro and to 5.56 yen. However, relative to typical market volatility, moves in the peso were less significant than those experienced by the Canadian dollar.
Assisting the loonie on its way down was this week’s fall in US crude oil prices below $61 per barrel and Canadian GDP data. Statistics Canada announced on Friday GDP growth of only 0.1% for the month of December, down from November’s 0.4% growth.