Canadian Dollar Slips Amid Escalating Trade War
A breakdown in trade negotiations between the US and Canada has led to a new round of tariffs on USD 20bn worth of Canadian exports. The Canadian Dollar (CAD) has underperformed among G10 currencies, according to MUFG's Derek Halpenny.
Halpenny warns that the CAD's reaction to these measures will be dictated by the risk of escalation rather than the initial impact. He notes that a 'tariff spiral' could intensify CAD downside risks if the dispute remains unresolved.
The tariffs, which took effect on Saturday morning at 12:01am, apply to a range of goods including beer, wine, spirits, milk products, and hockey equipment. Halpenny suggests that USD/CAD has over-extended to the downside and should currently be trading around 1.4000.
A quick retaliation by the US could force PM Carney to follow a 'dollar for dollar' approach, potentially hitting investor confidence harder. The longer there is no resolution to this escalating trade war, the more CAD downside risks will intensify.