- Of conifers and tariffs
- We are at an impasse
- The return of protectionism?
- Smooth sailing for the budget?
CAD hit a four-month low against the greenback this morning after President Trump announced a tariff on one of the most hotly contested trade disputes between Canada and the US: softwood lumber. Why is wood a hot topic for Trump? Most timber in Canada is owned by provincial governments who set a benchmark price for harvesting the commodity, which artificially keeps prices lower than market value. Trump says he plans to impose a 20 percent, retroactive duty on Canadian softwoods, making the import of deciduous trees moving from Canada to the states far more expensive. With lumber prices already at 13-year highs, this could make housing prices for Americans much more expensive. As oil prices also weaken, we could see the loonie remain depressed.
The US’s threat to slap a duty on softwood lumber imports from Canada comes after negotiations with Canada have seemingly stalled. Commerce Secretary Wilbur Ross said this doesn’t signal a trade war with Canada, but that the Trump administration intends to hold Canada responsible for their unfair trade barriers that are hurting the dairy industry at home. Canada’s tariffs on dairy imports have hit American dairy farmers, and Trump is drawing a line in the sand, tweeting this morning that “we will not stand for this. Watch!”
The Commerce Secretary included that the U.S. needs to defend its borders, both to the north and the south. This means that Canada’s currency isn’t alone in a move lower, nor is it bearing the brunt of it. We’re seeing peripheral pain in the Mexican peso as action against our neighbors to the north would make action against the southern border all the more likely. Investors will watch to see how this develops, and whether Trump’s focus on protectionist policies are making a comeback. While the White House cites Canada’s proclivity towards protectionism as the instigator, a rekindled focus on US protectionism would not bode well for the USD.
Concerns on a government shutdown were quieted when President Trump said he would be willing to sideline his funds for a US-Mexico wall in the upcoming budget negotiations. Leaving this off the table now would likely support a more stable USD in the short-term, leaving the US legislature to negotiate without any curve balls thrown in the mix. While Trump then tweeted the next morning to reaffirm his commitment to the wall, traders may be getting sick of the old ‘buy the rumor, sell the fact’ shtick. But while Trump’s tweet left the dollar unfazed, it did build pressure on the peso: “Don’t let the fake media tell you that I have changed my position on the WALL. It will get built and help stop drugs, human trafficking etc.”
EURUSD: The euro is slightly higher, boosted by rumors of a change in language at the ECB may be coming.
GBPUSD: Stronger sterling this morning despite the increasing deficit in the UK as it tracks larger moves in the euro.
AUDUSD: Aussie dollar lower, taking heat from the losses in NZD.
USDCAD: CAD hitting four month lows against the USD after Trump’s announcement of a tax levy on Canadian timber coming into the US.
USDJPY: Yen continues to weaken against the greenback as risk appetite builds in currency markets.