The people in the administration believe that tariffs are a critical tool in implementing industrial policy and raising revenues. Tariffs are going to be implemented on everyone and almost everything.
The implementation has been absolutely idiotic. And I think everyone behind Trump would have done it differently. But they were coming regardless.
The loonie broke 69 cents just now. I’m guessing it retests its lows from a few decades ago and may even have a 5-handle before this is through.
I think at the point where Trump is retaliating against the retaliation, it is a dispute.
To be honest, I have been baffled by CAD. It is clearly under pressure, but not nearly as much as I expected - it is still not down to where it was in January. I did a budget in December for a project with massive USD exposure on the cost side, with all revenue in CAD. Sort of a worst case scenario. We are still not at the median case I modelled. I expected we would be under 65 cents if dispute persisted into February.
CAD had already fallen 5 cents in three months into the winter, which is a pretty steep decline - G7 FX vol is something like 7%. I think CAD is being buoyed by the general weakness in USD, which has plummeted against most other currencies.
Like I said, this is being implemented in the worst way possible. We were seeing weakness coming into the last quarter, but Trump singlehandedly may be pushing the economy into recession with his on-again/off-again tariffs.
Credit spreads remain fairly tight but even they appear to be rolling over.
I expected a more dramatic fall, particularly when we saw that plunge in January - we have already seen 0.69, but it seems to draw support at around this level. I will be very curious to see the next round of balance of payments data, which I suspect will enrage Trump.
Trump now so angry at the 25% surcharge on electricity that he is going to…put a 25% tariff on that same electricity. Modelling suggests that will add almost $120 to the average NY electricity bill. But it also appears that Trump is so enraged he is going to apply the same to BC, Manitoba, and Quebec exports - all provinces where the premiers have so far declined to follow Ontario’s surcharge example.
How odd that they would appeal to a signed agreement after cheering on Trump as he tore others up. Maybe Mexico should ask about that little brown creek that comes into the Gulf of California that used to be the Colorado River.
Thinking about it, if the US eventually break up because of the stupidity of trumpism, and go either into civil war mode, or complete deliquescence, it could be a brilliant opportunity for Canada to take up some pieces of the cake and grow in importance…
