The Canadian dollar was trading lower Monday morning after U.S. President Donald Trump continued his attacks on Canada and Prime Minister Justin Trudeau.
Trump complained on Sunday that he had been blindsided by Trudeau's criticism of his tariff threats at a summit-ending news conference.
In tweets, Trump insulted Trudeau as "dishonest" and "weak."
PM Justin Trudeau of Canada acted so meek and mild during our @G7 meetings only to give a news conference after I left saying that, “US Tariffs were kind of insulting” and he “will not be pushed around.” Very dishonest & weak. Our Tariffs are in response to his of 270% on dairy! —@realDonaldTrump
Other Trump advisers also attacked Trudeau in TV appearances on Sunday.
Trump trade adviser Peter Navarro said in an interview with Fox News that "there's a special place in hell for any foreign leader that engages in bad faith diplomacy with President Donald J. Trump and then tries to stab him in the back on the way out the door."
The loonie recovered some ground to trade at 76.98 cents US on Monday afternoon, but was still down from its average value of 77.15 cents US on Friday.
Loonie down across board
Market strategists pointed to the fact that the Canadian dollar was underperforming against all major currencies.
Bipan Rai, North American head of foreign exchange strategy at CIBC Capital Markets, said that while markets expected a "frosty outcome" to the G7 summit, the events were "way darker than anticipated."
"Trump's constant about-face, brinkmanship approach to negotiations implies heavy two-way risk for foreign exchange and that the trade premium is likely here to stay for Canadian assets," he said in a note on Monday.
"The Canadian dollar has gapped weaker on a few crosses to start. Reaction in U.S. dollar-Canadian dollar cross is still muted, but euro-Canadian dollar and Canadian dollar-Swiss franc movements both portend to the loonie trading weaker on trade-weighted indices," he added.
However, Shaun Osborne, chief foreign exchange strategist at Scotiabank, said even though the loonie dipped below 77 cents US on Monday morning, it has not moved below the lows of last week or back in March when it was trading closer to 76 cents US.
"The Canadian dollar certainly is soft, but it's still within the recent ranges we've seen against the U.S. dollar," he told CBC.
"It's difficult for markets to really get their head around what this [Trump's tweets] means. If it just is a negotiation ploy or if it is something that the U.S. firmly believes in."
The Canadian dollar weakened against its U.S. counterpart on Monday after U.S. President Donald Trump, who has threatened to scrap the NAFTA trade pact, lashed out at Canadian Prime Minister Justin Trudeau in their feud over trade.
Trump fired off a volley of tweets venting anger at NATO allies, the European Union and Trudeau himself in the wake of a divisive G7 leaders’ summit over the weekend.
Trump tweeted on Saturday that Trudeau’s remarks at a news conference, where he said Canada would not be pushed around, “were very dishonest and weak.”
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“I think it is all about G7,” said Mark McCormick, North American head of FX Strategy at TD Securities. “You have the lingering uncertainties over NAFTA ... you still have room now for Trump to walk away.”
The loonie has been pressured recently by new U.S. tariffs on steel and aluminum imports as well as slow-moving talks to modernize the North American Free Trade Agreement, known as NAFTA.
Canada sends about 75 per cent of its exports to the United States and its economy would be hit hard if NAFTA were scrapped.
At 4 p.m. EDT (2000 GMT), the Canadian dollar was trading 0.4 per cent lower at $1.2985 per greenback, or 77.01 U.S. cents. The currency traded in a range of $1.2957 to $1.3027.
Losses for the loonie came after data on Friday showed the Canadian economy unexpectedly shed jobs in May. Still, wages rose at their strongest annual pace in nearly six years, which could give the central bank room to raise interest rates as soon as July.
Speculators have added to bearish bets on the Canadian dollar, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed on Friday. As of June 5, net short positions rose to 16,039 contracts from 15,690 a week earlier.
The price of oil, one of Canada’s major exports, rose even as comments from the Iraqi oil minister cast doubt as to whether OPEC would decide to boost output at its upcoming meeting.
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U.S. crude oil futures settled 0.6 per cent higher at $65.05 a barrel.
Canadian government bond prices were higher across the yield curve, with the two-year up 3.5 Canadian cents to yield 1.907 per cent and the 10-year rising 13 Canadian cents to yield 2.308 per cent.
The gap between Canada’s 2-year yield and its U.S. equivalent widened by 4.7 basis points to a spread of –61.7 basis points, its widest since May 2017.
The Canadian dollar slumped Monday as a new chapter opened in the trade spat between Canada and the U.S., and there’s little to keep the currency from extending its slide, an analyst said.
The Canadian dollar USDCAD, +0.2388% also called the loonie, was among the worst performers on Monday following the Group of Seven industrialized nations summit that saw President Donald Trump and U.S. officials blast Canadian Prime Minister Justin Trudeau and escalate tensions with allies over trade issues.
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One U.S. dollar last bought C$1.2987, up from C$1.2927 late Friday.
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 U.S. Shortly after, Trump withdrew his support for the G-7 communiqué, which stressed the importance of a rule-based international trading system, and attacked Trudeau on Twitter. U.S. 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 U.S. farmers, workers and companies, I have instructed our U.S. Reps not to endorse the Communique as we look at Tariffs on automobiles flooding the U.S. Market! — Donald J. Trump (@realDonaldTrump) June 9, 2018
“The Trump-Trudeau spat reinforces our view that macro [and] trade news is bad for the Canadian dollar,” said Mark McCormick, North American head of FX strategy at TD Securities.
U.S.-Canada relations had already been strained by the lengthy renegotiation of the North American Free Trade Agreement that ties the two nations, as well as Mexico, together. The talks that began last year in August added a healthy amount of headline risk to the Canadian currency and the Mexican peso USDMXN, +0.0966% Negotiations were previously expected to wrap up in May to ensure a deal-in-principle ahead of Mexico’s July 1 presidential election and the U.S. 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, according to FactSet data. The Nafta 2.0 negotiations are now expected to last until 2019, leaving plenty more room for more headline risk, market participants expect.
“Investors have Nafta fatigue just as there was Brexit fatigue in the British pound USDGBP, +0.0000% ” said McCormick. “They don’t know how to trade the loonie anymore, because it just moves on headlines.”
At this point, the most loonie-positive outcome would still be a deal-in-principle, according to McCormick. But even then, it’s unlikely an agreement cold be pushed through each country’s legislature before November, meaning a fully ratified agreement might not be seen until 2019 at the earliest.
Read: Here’s what’s next for Nafta, Mexico’s peso and Canada’s dollar
That might not be bad news.
“As long as Trump doesn’t walk away from Nafta altogether in the next month or so, people will put it on the back burner,” he said. Should the U.S. trigger Article 2205 to begin a formal withdrawal from the trade pact, however, which in turn would take months, it could change the trajectory of the Bank of Canada’s monetary policy path.
The central bank 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.
McCormick said a July move is likely still on track. But after that, the central bank might go on autopilot to see how things unfold, he added. “Maybe their hawkishness is only as good as the next policy meeting.”
BOC Deputy Gov. Lynn Patterson will deliver a speech on June 18, which will be closely watched for policy clues.
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