The Canadian dollar is under pressure. Domestic and international events have combined to undermine the currency and target lower levels into year-end. This morning, General Motors announced that it planned to close its Oshawa plant and terminate 2,500 employees. There are a host of reasons for the closure, but the new U.S. Mexico Canada Agreement on trade and existing tariffs on steel and aluminum loom large.
Sky-high electricity prices and business killing tax policies from both the Federal Liberal government and the former Ontario Liberal governments contributed heavily towards the plant's demise. President Trump’s tariffs on steel and aluminum imports reportedly cost GM (U.S.) $1 billion and that money had to be recouped from somewhere. Hello, Canada.
Falling oil prices are another source of woe for the Canadian dollar. West Texas Intermediate touched $50.13 U.S. overnight. That means that Alberta’s Western Canada Select is worth just $14.25/b, well-below breakeven for producers. Also, the drop in oil prices has serious implication for the Alberta and Federal budgets due to a decline in royalties. The risk of a worsening domestic economic environment will continue to undermine the Canadian dollar.
Overnight, the Canadian dollar got a bit of support from a modest improvement in the global risk tone. Some traders are hoping for positive developments from the Trump/Xi Jinping meeting at the G-20 summit in Argentina at the end of the week. Others are more skeptical. Neither side appears to be particularly motivated to get a deal done. Failure to reach an agreement risks exacerbating a global slowdown which would undermine the Canadian dollar at the same time.
In Europe, there was a tepid reaction to news the European Union agreed to the U.K. Brexit plan. Worries that Spain would block the deal were alleviated after Spain received an agreement to be part of all Gibraltar discussions. The hard part is whether U.K. Prime Minister Theresa May can get enough votes in parliament for the deal to be passed. At the moment, there is enough opposition to suggest the deal may not last past the middle of December.
There will not be any shortage of "guidance" from Fed officials. Fed Chair Jerome Powell headlines a parade of speakers when he addresses the Economic Club of New York on Wednesday. Traders are curious to see if he adopts a less hawkish tone in light of the recent equity market plunge. The Federal Open Market Committee (FOMC) meeting minutes are released on Wednesday, as well.
There isn’t any U.S. or Canadian data of note today, leaving oil price movements and Wall Street to provide direction for traders.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
