The Canadian Dollar Regains Strength As Manufacturers Take A Hit

The Canadian dollar strengthened after the U.S. dollar fell in the wake of the political earthquake that resulted south of the border following the events in Charlottesville. After several CEOs departed Donald Trump’s advisory council and more signaled the intention he made the decision to dissolve both, including the manufacturing council. Shares of Canadian Pacific Railway Limited (TSX:CP)(NYSE:CP) have fallen 2% over the course of the week. There are fears that dollar strength will damage momentum for Canadian manufacturers.

Pressure has intensified in the wake of NAFTA negotiations that also began this week. The United States is signalling that it will not accept a mere tweak of the agreement. U.S. trade representative Robert Lighthizer has said that NAFTA has fundamentally failed many Americans and needs “major improvement”. The U.S. is telegraphing that it desires duty-free NAFTA products contain more products manufactured within the continent and more specifically within the United States.

Canada has defended NAFTA as an economic success and has defended the idea that only cosmetic changes are required. A Canadian dollar hovering over the $0.80 mark, combined with concession forced on Canadian manufacturers to cede to American demands could do major damage to railway and manufacturing stocks. The hope is that the intertwined economies of the U.S. and Canada will give the Trump administration pause before issuing harsh demands that could do long term damage up north.

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