Economists are blaming the drop in the Canadian dollar on a number of things, depending on which analyst you happen to be following. But suffice to say – the ongoing NAFTA talks and President Trump’s threat to impose tariffs on steel and aluminum have had a significant effect on the loonie.
Today, the Globe and Mail suggested the early morning announcement of the historic agreement between North Korea and South Korea to hold a summit, the first in over 10 years, may have boosted risk appetite.
However, CBC is reporting the fall of the loonie is more centered on the ongoing negotiations between Canada, the U.S. and Mexico to update the 1994 North American Free Trade Agreement (NAFTA), and the more recent threat of exorbitant tariffs the Trump administration wants to impose on steel and aluminum.
With Trump threatening to tear up the NAFTA agreement and negotiate one-on-one with Mexico and Canada individually, that idea is not going over with either country. And when the latest round of talks ended this week in Mexico City, U.S. negotiators signaled they were in a hurry to get an agreement between the three countries in writing, which the Globe and Mail called avoiding “political headwinds later this year.”
On Monday, U.S. Trade Representative Robert Lighthizer said “time was running short” to rework the NAFTA deal and again brought up the prospect of bilateral deals with its partners, even though Washington says it would prefer a three-way deal.
The loonie versus the tariffs
While North Korea’s nuclear capabilities and threats to blow the U.S. off the map are very real, they don’t pay anyone’s salary or feed families. And that is where the tariffs and the possibility of a trade war are hitting so much closer to home in all three countries involved in the NAFTA talks.
The tariff talk “is doing no service to the loonie” BMO economist Robert Kavcic said in a note to clients early Monday. And the tariff talk is not doing the U.S. dollar much good, either, even though investors started buying Australian and New Zealand dollars and other emerging currencies after the Korea announcement this morning.
“It’s too early to wholeheartedly buy these currencies because of the chances of escalating trade tension between the U.S. and its trading partners,” said Omer Esiner, the chief market analyst at Commonwealth Foreign Exchange in Washington, reports Reuters.
Here’s a look at the currencies as of the end of trading on March 5, 2018:
The U.S. dollar fell 0.557 points or 0.62 percent, against a group of currencies to 89.523 cents.
The New Zealand dollar was up as much as 1.2 percent on the day and the Australian dollar was up more than 1 percent.
At 9:16 a.m. EST (1416 GMT) Tuesday, the Canadian dollar was trading 0.6 percent higher at $1.2890 to the U.S. dollar, or 77.58 U.S. cents, its first advance since Feb. 23.
