What does Trump’s victory mean for Canada? All roads lead to a weaker loonie
By Dylan Smith
While the whole world is engaged in a massive “risk-on” Trump trade, the mood is far from buoyant in the “51st” state, with concerns over the economic implications of Donald Trump’s agenda for Canada top of mind on Bay Street and Parliament Hill.
We should point out that nobody really knows the implications of Trump’s win for America yet, never mind Canada. United States Federal Reserve chair Jay Powell said it best in his press conference last week: “We don’t know what the effects on the economy would be, specifically whether and to what extent those policies would matter …” So, we’ll admit right off the bat that we’re engaged in some second-degree speculation here.
Put more concretely, we don’t know yet if there is a congressional majority for tax cuts (fiscal conservatives on both sides of the aisle are conscious of the already precarious fiscal starting point); we’re not sure if tariffs are a policy priority (as former U.S. trade representative Robert Lighthizer thinks) or a bargaining chip (the view of most other Treasury Secretary candidates); nor whether they’d include tearing up the United States-Mexico-Canada Agreement. It is also too early to say whether the administration will have the stomach for an unpopular and unsightly mass deportation scheme.
So, with that grain of salt liberally applied to what follows, let’s look at what we think Trump means for Canadian macro and markets. To preview our findings, all roads appear to lead to a weaker Canadian dollar, and we think a move through 66.7 cents U.S. is on the cards.
First, interest rates will continue to diverge. The Bank of Canada has been easing aggressively — delivering 125 basis points of cuts this year — and needs to go a lot further
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