Why the Canadian dollar is largely shrugging off the trade war talk
The Canadian dollar is the G10 laggard today but its hardly collapsing and that might be a surprise given the 'trade war' rhetoric following the late-Friday collapse of talks with the USA.
USD/CAD is up 76 pips to 1.3840, or 0.55%.
It's a nice move but it doesn't even get us back to Wednesday's opening levels and I'd argue that a good chunk of today's rise is due to the 1.8% decline in oil prices.
So why doesn't the market move match the rhetoric?
Simply put, not that much was at stake in terms of the latest US tariffs. The measures apply a 50% tariff rate on imports to the US but they only apply on about 5% of Canadian exports to that country. Put differently, more than 80% of of exports will remain duty free under USMCA exemptions.
Moreover, the 50% tariffs add to existing levies on products like steel and aluminum, lumber, and motor vehicles. There are different dynamics in each of those that are worth breaking down:
- Steel exports are already effectively blocked by the tariffs, so adding a 50% tariff or a 500% won't change the volumes. Canadian steelmakers are shifting to sell within the domestic market
- Aluminum is only lightly produced in the USA and is extremely energy intensive. Whatever the cost of imports, the US buyers will pay them because there is no alternative.
- Lumber is subject to a series of tariffs already that have largely locked out Canadian sellers, though there are instances where the US importers pay the fees because of stronger Canadian wood grown in cold climates. Overall though, the lumber industry is in something of a depression as mills close in both Canada and the US due to the retrenchment in home building.
- Autos. This is where the brunt of the impact will hit but there is so much integration between Canadian and US automakers that it's going to be tough to shut any lines down in the short-to-medium term. Companies and consumers will just eat the cost.
When you add it all up RBC estimates that the Canadian value added content of newly tariffed U.S. imports adds up to ~0.4% of Canadian GDP and jobs. That's hardly a blip and federal and provincial governments are already talking about stimulus and supports to counter it.
Canada’s average effective tariff rate rises to around 6% from around 3%.
So this current tariff levels aren't really a problem.
I'd argue the loonie is reacting to the risks of further escalation. Canada announced counter tariffs that will hit on September 7 and that leaves a narrow window to return to the negotiating table. In contrast, the Trump administration could throw a fit about retaliatory Canadian tariffs and escalate, kicking off a possible spiral.
I'm slightly encouraged that Trump's rhetoric so far hasn't been escalatory but that could change on a whim and the loonie certainly hasn't fallen enough to make it worthwhile to chase.
This article was written by Adam Button at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
FX初心者には必須 無料のうちにGET！
