The loonie is shaping up as an early casualty of U.S. president-elect Donald Trump’s latest trade threats against Canada, with knock-on impacts expected elsewhere in Canadian pocketbooks.
The value of the Canadian dollar dropped to a four-and-a-half-year low of 70.53 cents to the U.S. greenback late Monday in the wake of Trump issuing renewed threats via social media for 25 per cent tariffs on all imports from Canada and Mexico.
The loonie regained some value through the morning on Tuesday, rising back above 71-cent mark before noon.
Despite a rally late last week, the Canadian dollar has largely faltered against its American counterpart since the U.S. election earlier this month.
Much of that weakness has been tied to promises Trump made during the campaign to levy blanket tariffs against other nations and install other protectionist, America-first policies — moves that encourage investors to pile into the U.S. dollar, hurting other currencies.
The Canadian dollar is also affected by the differential between the policy rates of the Bank of Canada and the U.S. Federal Reserve, with a wider gap hurting the loonie. Signs that Canada’s central bank may rein in the pace of interest rate cuts helped to fuel the loonie’s short-lived rally last week.
Get weekly money news
A weaker Canadian dollar makes imports to the country more expensive, which risks reigniting inflation that has cooled in recent months.
The impact of the sagging loonie is already being felt at the grocery store, BMO senior economist Sal Guatieri told Global News last week.
Canada is set to import more fresh food from the U.S. as the winter approaches, which Guatieri said means Canadians can expect to pay more as the looming Trump presidency keeps the loonie “on the defensive.”
—With files from Global News’ Anne Gaviola.
Comments