Turkey took a bite out of the Canadian dollar, as well as the G-10 and emerging market currencies on Friday and again today. U.S. President Trump tweeted Friday, that he was "doubling tariffs on steel and aluminum with respect to Turkey." The Turkish lira plunged against the U.S. dollar, and it dragged that rest of the world’s currencies down with it. The president is annoyed about the slow pace of talks with Turkish officials over the release of a U.S. pastor whom Turkey says was involved in a failed coup attempt in 2016.
Turkey was just the latest country to feel the wrath of Trump. The President hit Russia with fresh sanctions earlier in the week because of accusations that the Russian government was involved in poisoning two former Russian citizens living in the U.K. The Russian ruble sank and traders gravitated towards risk aversion trades.
Friday’s Canadian employment report was better than expected. Analysts were a tad unhappy that all the gains were in the part-time jobs sector. CIBC economists point out that the 5.8% unemployment rate is close to full-employment in Canada and it is only a matter of time before rising job vacancies spark wage inflation.
Nevertheless, the Canadian dollar didn’t get any benefit from the employment data as it was overshadowed by the tariff news on Turkey and caught up in the stampeded to buy U.S. dollars. The Canadian dollar was also on the defensive because of the Canada/Saudi Arabia diplomatic spat.
The Canadian government was gobsmacked by Riyadh’s reaction. They couldn’t understand how a seemingly innocuous, vanity tweet by an attention-seeking politician could spark such a reaction. Canada reportedly asked the U.K., the U.S., and the United Arab Emirates for help to cool the furor created by Foreign Minister Chrystia Freeland. The U.K. Foreign Office responded neutrally; urging restraint and professing support for human rights. The U.S. government was no help. A U.S. State Department spokesperson said it was up to Canada and Saudi Arabia to resolve their differences. The UAE and Bahrain released statements supporting Saudi Arabia.
President Trump took aim at the North American Free Trade Agreement again this weekend. He tweeted "Deal with Mexico is coming along nicely. Autoworkers and farmers must be taken care of, or there will be no deal. New President of Mexico has been an absolute gentleman. Canada must wait. Their Tariffs and Trade Barriers are far too high. Will tax cars if we can’t make a deal!"
His tweet implies a bilateral U.S./Mexico trade deal. If so, Canada may be forced to give in to U.S. demands to secure a trade pact or be forced to walk away. Either scenario leaves the Canadian dollar vulnerable to further selling.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
