Loonie plummets to lowest level in 8 months, NAFTA divorce could spark trade war

In just one month, the Canadian dollar has lost 5% of its value, and economists believe it's because of US President Donald Trump.

Trump’s exlusionary opinion on cross-border trade and the NAFTA agreement continue to put the loonie under stress.

The CAD treads water around 0.77 US following the seventh round of NAFTA negotiations in Mexico last week where the Trump administration made a “form of an announcement that it plans to introduce a 25 per cent tariff on imported steel, and a 10 per cent tariff on imported aluminium.”

These proposed tariffs play directly against the Canadian automotive industry, which sends vehicle parts —made of steel and aluminium— to American plants for assembly.  Further, Canada is America’s “largest source of imported steel and aluminium.” If America can create both materials at home, the loonie and a portion of the Canadian economic map will require a remodel.

Other countries, including Canada, are threatening economic retaliation which could spark a trade war that would reverse decades of “coordinated global economic growth that has propelled stocks.”

Markets have sold off shares in response. The Bank of Canada is looking to pursue cautionary policies and oil prices remain low.

“The Canadian dollar has declined more than five per cent since its recent peak of 81.5 cents US on Feb. 1. On Monday, it dipped below 77 cents U.S., about the level at which it found support through the latter part of 2017. However, the Bank of Canada meeting on Wednesday is unlikely to give the loonie much of a boost.”

Robert Kavcic notes that Canada might not be able to avoid the tariffs proposed by this US government. The loonie could crash even more and adversely affect Canadian investments.

One economic strategist considers “NAFTA dead,” expects “retaliation and an outright global trade war” and calls the looming breakup between Canada and America “all so sad.”