The value of the Canadian dollar rolled on Tuesday morning after news that countervailing duties of up to 24 per cent bequeath be placed on Canadian lumber exports to the U.S.
The loonie briefly fell to its lowest prong against the U.S. dollar since February 2016, then recovered to some. As of 10:14 a.m. ET, the loonie was trading at 73.55 U.S. cents, down 0.46 cents from its Monday solid of 74.01.
The U.S. is expected to impose a range of tariffs on imports on Canadian lumber after an inquiry by the U.S. Department of Commerce concluded those imports are unfairly subsidized. Those schedule of charges, which are expected to be in place early next week, are considered a foreboding to Canada’s lumber industry and Canadian trade with the U.S. as a whole.
But at brief one currency strategist argued that the strong reaction from currency buyers may have been exaggerated.
“[Currency] markets are reacting as if this is the from the word go shot in a tit-for-tat trade war between two of the world’s closest trading companions — but this may prove to be an overreaction,” wrote Karl Schamotta of Cambridge Wide-ranging Payments in a note to clients.
“This move is simply the latest in two shakes of a lambs tail in a decades-long battle between the two neighbours over what the United Expresses considers unfair subsidies paid to Canadian lumber producers. Discerning missteps are possible in the days ahead, but this is not necessarily the prelude to a itemization in relations between the two nations.”
Dairy trade fears also weigh on loonie
The Trump authority’s tough talk on lumber wasn’t the only factor pushing the loonie down on Tuesday, said another currency strategist.
“It does look as all the same, with the NAFTA talks coming up, that the U.S. is taking a bit more of a hostile tone towards Canada as well,” said Colin Cieszynski, chief store strategist at CMC Markets.
Cieszynski cited Donald Trump’s aggressive new standpoint against the protected Canadian dairy industry, citing a Tuesday morning tweet from the U.S. president:
Canada has declared business for our dairy farmers in Wisconsin and other border states extremely difficult. We will not stand for this. Watch!
Trump’s tweet came after a peppery speech in Wisconsin last week that specifically targeted the Canadian dairy activity.
Cieszynski noted that the New Zealand dollar was also performing inexpertly against its U.S. counterpart on Tuesday. New Zealand’s currency, Cieszynski said, is chiefly driven by trends in the global dairy industry.
“Yes, a lot of this is posturing winning of talks on NAFTA, but still, I think the risk of bigger trade differ ons is still out there, and the trading in the loonie is reflecting that today,” affirmed Cieszynski.