The Canadian dollar started the week under pressure, and that pressure did not abate overnight. It wasn’t alone. The U.S. dollar climbed steadily against the G-10 major currencies yesterday and then consolidated those gains in a lackluster overnight session. The greenback is in demand for a variety of reasons against the major currencies, which has managed to exacerbate the downward pressure on the Canadian dollar.
Yesterday’s news that General Motors planned to close all of its Oshawa facilities was a big negative. GM was on the receiving end of at least $1.0 billion, courtesy of the Federal and Provincial governments after its bankruptcy in 2008. The money turned GM into a profitable entity, but those profits came at the expense of the Canadian taxpayer. The money was never repaid, and the government wrote the debt off in 2018. The writing has been on the wall for GM Oshawa for a long time. It manufactures passenger cars while buyers are demanding trucks, SUVs and crossovers. President Trump’s trade practices and tariffs on aluminum and steel provide other issues. The plant closure will knock off 0.2% from Canadian Gross Domestic Product according to Bank of Montreal economists.
The Canadian dollar is still reeling from the 35% plunge in the West Texas Intermediate (WTI) since October 17. The ongoing-U.S. and China trade war is expected to reduce global economic growth in 2019. Lower growth means lower demand for commodities, including oil. Initially, the U.S. sanctions against Iran and any nation importing Iran crude led to expectations for higher prices due to the loss of supply. Instead, the U.S. granted waivers to eight of Iran’s largest oil customers, which significantly reduced the prospect of a supply shortage. Trump was urging Saudi Arabia to step up production to ensure there wouldn’t be any shortages. As all of the above was occurring, news came out that the U.S. produced a record 11.3 million barrels per day in October while U.S. stockpiles increased. The Canadian dollar was further undermined by the Federal government’s reluctance to support the Trans-Mountain pipeline from Alberta to the west coast, ensuring that land-locked Alberta’s crude trades at a hefty discount to WTI.
Trump is meeting with Chinese President Xi Jinping at the G-20 summit in Argentina on Friday to discuss trade. Trump dampened expectations of a trade breakthrough yesterday. He told the Wall Street Journal that he still plans to raise the existing tariffs on Chinese imports from 10% to 25% in January. He also added that he might impose tariffs on another $267.0 billion of Chinese imports. Those comments supported the greenback at the expense of the rest of the G-10 major currencies.
Federal Reserve Vice Chair Richard Clarida leads a parade of Fed officials giving speeches today. Traders will be listening to see if the Fed is backing off from its recent hawkish stance, in light of equity market weakness.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
