The big sink

Snowbirding this winter? Good luck. Take a bigger bag of money.

The Canadian dollar has been losing air lately, and it appears there’s more leakage to come. Currently one of our dollarettes is worth about 71.2 US pennies. Since Trump won (and continues to win – the House now has a red majority), our currency has suffered along with the Euro, the yen and the peso.

How bad is 71.2 cents?

Meh. Not good. But not epic. In 2016 the loonie descended to 70 cents, and it didn’t feel like a crisis. We were actually lower than this again four years ago. And, no, it wasn’t a disaster then, either. The lowest ever was a full 10 cents below current levels, at 61.79. That happened in 2002.

A low dollar makes heading south miserable. It’s great for our exports, of course. Not great for imports. Because everything is political these days, the Cons and Trumpers among us are blaming Trudeau for a low dollar, saying it’s a symbol the world believes he’s a dink and the country is collapsing. Like the Orange Guy said about America’s leadership and society to get elected. It worked.

So what’s going on?

The Canadian dollar is down substantially as measured against the American one. Against the euro or the Mexican peso, it’s strengthened since the US election. The recent decline actually has zero to do with the twerps in Ottawa, our shameful budgetary deficit or all that steamy debt. Yes, those are national negatives. But they’re not raising the relative price of a burger that you buy in Tampa.

First, the greenback is soaring globally because of Trump and what FX traders expect he’s going to do. That is, simply, to step on the gas. This reversed a months-long decline in the US currency and instantly caused global chaos, since 90% of all foreign exchange transactions (think about oil, for example) are in Yankee dollars.

Why the Trump surge?

Tariffs, for a starter. Trump is a trade-barrier guy and vows to impose at least a 10% tariff on everything, and 60% on Chinese stuff. He says this will punish other nations and promote US investment. But the FX market sees it differently: tariffs are taxes on imports which Americans (not foreigners) pay. Producer and consumer prices will become more expensive, demand for imports which are priced in foreign currencies (like the Canadian dollar) will be reduced and the value of the American currency forced higher.

Theen there’s the inevitable inflation caused by tariffs, prices, lower taxes and an over-stimulated economy. That leads to higher interest rates. And as the return on money increases, more capital is attracted to America which increases the demand for dollars, leading to a higher value.

The US dollar rose fast when Trump was first elected in 2016. Now that he controls the presidency, the House, the Senate and the Supreme Court, this dollar ascent is expected to eclipse that of eight years ago. Against the euro and the loonie, for example, significant gains may come.

Meanwhile interest rate predictions are being furiously revised in light to the Republican takeover of America’s political establishment. Economists at CIBC see US rates stabilizing at about 3.3% next year (from 4.6% now), while the Bank of Canada will drop and hold at the 2.25% level (because we have a weakening economy and Trump will make it worse). That gap – more than 1% – is a biggie, and enough to suggest the loonie has more tanking to come.

“These tariffs will immediately raise the cost of imports,” says BMO’s Scott Anderson of the US impact, “and might give more cover for domestic producers to raise prices, especially if the economy remains strong… We know these tariffs will likely push up inflation, interest rates, and the U.S. dollar, but it is impossible to know by how much until we have a better idea of what the tariff rates are going to be on which products and which countries. The tariffs will also like trigger retaliation from other countries that could hurt U.S. exports and production in other sectors, pushing down export growth and holding back GDP and employment growth.”

In short, nothing good. Lots bad. And now we know it’s coming.

During the election Trump apologists dismissed his rhetoric as unscary exaggerations. Like ‘Tariffs are beautiful’ and ‘migrants are criminals, animals and vermin.’ But his cabinet picks this week make it clear the extreme factor of Republicanism – MAGA – is firmly in control. When Trump walks back into the Oval Office during the first week of January, there will be no moderation, watering-down, pandering, rethinking or retreat.

Still want Florida?

This year try Moncton. Bring your elk.

About the picture: “As seen on Toronto’s Beltline,” writes Ward.

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Source: https://www.greaterfool.ca/2024/11/14/the-big-sink/