The Canadian dollar vs. Donald Trump: How low can a slumping loonie go as the Trump trade plays out?

financialpost.com:

The Canadian dollar has been steadily declining over the past couple of months — a drop many economists and currency experts have linked to the rising expectations of a Donald Trump victory in the lead up to the U.S. election. The loonie is down just over four per cent against its U.S. counterpart since late September, and 1.5 per cent since Nov. 5. It slumped nearly a half per cent after Trump announced that, on day one of his presidency, he would impose a 25 per cent tariff on all goods entering the United States from Canada and Mexico.

With the loonie currently hovering around 71 cents U.S. and Trump’s inauguration still two months away, Canadians are wondering just how low it might go. Here’s a breakdown of the factors working against the Canadian dollar as the so-called Trump trade — a combination of deregulation, tax cuts, higher deficits and inflation — plays out.

Given our highly integrated trade relationship with the U.S., the currency markets’ trigger response to Trump’s tariff throwdown is understandable, said Bipan Rai, managing director and head of ETF and structured solutions strategy at BMO Global Asset Management.

While the Canadian dollar dropped dramatically after Trump posted his tariff threat on social media, Rai thinks that a few days out from the main event, the “risk” to the loonie has already been discounted. “The foreign exchange market, especially the spot market, is quicker than most in doing that,” Rai said, looking back to late September when the loonie started to slump in line with Trump’s rising odds of winning.

“You could ascribe some degree of weakness in the Canadian dollar to the possibility that Trump could become president and levy these tariffs,” he said. “There is a certain amount