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Why is the Canadian dollar doing well in January?

The Canadian dollar was trading at 76.6 cents compared to the U.S. dollar on Tuesday. The loonie is up 3 cents since the end of December.
The Canadian dollar was trading at 76.6 cents compared to the U.S. dollar on Tuesday. The loonie is up 3 cents since the end of December. The Bellingham Herald

The Canadian dollar has rallied at the start of 2017, but where things go from here probably won’t be clear until the new U.S. administration is in place.

76.6 cents The Canadian dollar compared to the U.S. dollar. That’s up 3 cents compared to the end of December.

Higher oil prices and comments from President-elect Donald Trump that suggest a need for a weaker U.S. dollar sent the loonie higher on Tuesday, closing at 76.6 cents compared to the U.S. dollar. That’s a 3-cent rise since the end of December.

A few factors are in play that has led to the rally, said Steven Globerman, an international business professor at Western Washington University. One is changing perceptions by currency traders about the U.S. economy, with some thinking it won’t take off in 2017 quite as fast as initially expected a few weeks ago. That may slow down the expected federal interest rate hikes increases. Higher interest rates would increase the strength of the U.S. dollar at a time when Canada is expected to hold steady on interest rates.

Another factor in the recent rally is that oil prices remain steady after rising above $50 a barrel, something Globerman thinks will remain in place for the foreseeable future. Canada’s currency is heavily influenced by the price of oil.

While oil and the U.S. economy will continue to be factors in what happens with the Canadian dollar, how the Trump administration addresses deals like NAFTA and other trade policies will also be key to what happens to the loonie, Globerman said. Trump has said he wants to either tear up or renegotiate NAFTA, but much of the discussion has been the part of the agreement between U.S. and Mexico.

“NAFTA is one of those big shoes yet to fall,” Globerman said.

The current uptick in the Canadian dollar may be short-lived, because much of it is being driven by the value of the U.S. dollar and Trump’s comments, said Laurie Trautman, director at Western’s Border Policy Research Institute. Right now, it’s more about a weakened U.S. dollar than a strengthening loonie, she said.

Trautman agrees with Globerman that what the U.S. does in terms of policy will have an impact on the Canadian dollar. That includes current discussions about a border adjusted tax and increasing U.S. oil production.

The recent rise in the loonie isn’t expected to lead to a significant increase in Canadians buying products in Whatcom County. Trautman said the Canadian dollar would need to rise up to around 85 cents compared to the U.S. dollar for a sustained period before cross border traffic in Whatcom County would have a big increase.

Dave Gallagher: 360-715-2269, @BhamHeraldBiz

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