One of the casualties of Donald Trump being elected as the 45th United States president has been the Canadian Dollar, but will this trend continue? While we wait to find out, we can enjoy the gains on USD/CAD, with the currency pair reaching the kind of levels not seen since February 2016.
There are three good reasons that this decline has happened, and all three are related in some way to Donald Trump and his successful presidential campaign.
Trump has announced some bold plans to cut taxes and increase spending on just about everything. His plans mean that there will be more borrowing from bond markets and higher interest rates and inflation. In other words, everything is supporting the US dollar. He could theoretically pass all of these plans through Congress, as the Republicans currently control it. In reality, however, these Republicans are against increasing debt. Even so, the markets are taking Trump seriously at least. The Canadian dollar isn’t bucking this particular trend, with that having an effect on the USD/CAD.
Trade deal confusion
One of the vows Trump made was that he would revamp trade negotiations, in particular, the NAFTA agreement held between the US, Canada, and Mexico. Canada (along with the USD/CAD) is reliant on trading with their southern neighbours and exporting to them. Uncertainty surrounding trade relations could hurt the Canadian economy across the parallel 49th. This damage could happen even if the change itself doesn’t, and even though most of the anger is directed not towards Canada, but towards Mexico.
Oil price instability
The price of crude oil has gone down. Part of this is because of reasons relating to Trump. A stronger dollar will usually bring reduced oil prices along with it, but there’s more to the story than just this. Iran recently announced that they have two new oil fields that are producing oil, but it also looks like OPEC is no closer to putting together a real agreement for its regulation either, which is creating problems, as the Canadian dollar is also weakened by reduced oil prices.
By the end of November, the USD/CAD was trading at 1.3567, which is the highest that it’s been since February. The next level the currency pair can reach is 1.36535, which would be a swing low from early February. The record is currently 1.40 and it worked well as resistance in the tail end of 2015, meaning that it is also a strong line. If it were to go up to 1.4325 this would be a significant step on the road towards 1.47, which does seem somewhat distant.
There really is no other way to address the situation, as the USD/CAD is bracing itself for a rocky time in a Trump run world. While the post-election result gains are apparent, it’s pretty clear that such does not tell the whole story of what may very well be on the horizon.
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Alexander Bowring is a London based writer and a Southampton Solent University Screenwriting graduate. He has worked alongside TV personality and Telegraph feature writer Alison Cork, whilst also having produced content for ITV, This Morning, Canvas8, Who’s Jack, Alison at Home, and Bonallack & Bishop Solicitors. Alexander also has a keen interest in investments.