The Canadian dollar could be in for a bumpy ride in the coming weeks as currency investors try to gauge what a Donald Trump presidency means for Canada.
Following the presidential election, the Canadian dollar weakened Wednesday by about 1 cent, falling to 74 cents compared with the U.S. dollar. The loonie has remained relatively stable in the second half of 2016, hovering at 75 to 77 cents for most of that stretch.
Where the Canadian dollar goes from here is hard to know until there is more clarity from the upcoming Trump administration, said Steven Globerman, an international business professor at Western Washington University. During the campaign, Trump regularly mentioned his intention to renegotiate or withdraw from NAFTA, the trade deal between the U.S., Canada and Mexico. If Trump follows through on that, it would mean a period of uncertainty that could further weaken the Canadian dollar, which has a major influence on cross-border shopping in Whatcom County.
Globerman said from what he’s seen from the campaign, Trump’s problem with NAFTA has more to do with the trade agreement with Mexico rather than Canada. If that’s the case, a situation could develop in which Canada and the U.S. keep the framework of the trade agreement in place while Trump attempts to create a different deal with Mexico. Prior to NAFTA, the U.S. and Canada had a similar trade agreement to what currently exists.
“My instinct tells me Trump would like to keep the free trade agreement with Canada,” Globerman said.
If that scenario plays out, it might create other challenges because the three countries are so intertwined when it comes to trade, said Laurie Trautman, director of the Border Policy Research Institute at Western. In car manufacturing, for example, parts are built in one country and assembled in another.
“If you cut Mexico off, it would be like throwing a wrench in the system,” Trautman said.
In the longer term, Globerman said, there could be some opportunities for Canada to increase its trade with the U.S. Trump appears to be more favorable to importing more oil from Canada as a way to make North America more energy independent. That could bring back a project such as the Keystone Pipeline, and the Canadian company behind that project said it was eager to work with Trump in reviving it, according to a Wednesday online post in Politico.
In the short term, the loonie may continue to weaken because of other factors, Globerman said. Along with the uncertainty a Trump presidency brings, Globerman said he expects the U.S. will raise interest rates soon, which would weaken the loonie. Oil prices also heavily influence the Canadian dollar, and Globerman doesn’t see anything in the short term that suggests those prices will rise significantly.
One other aspect worth watching is what the U.S. does against other currencies going forward, Trautman said. On the day after the election, the stock market rallied after an initial stumble and the U.S. dollar performed better against several other major currencies.