A weaker currency could spell trouble for Canada with incoming U.S. President Donald Trump, according to a senior official at BMO Global Asset Management.
The loonie has been drifting upward over the last week and a half, rising above 75 cents U.S. on Wednesday for the first time since Dec. 19; but Paul Taylor, BMO Global Asset Management’s chief investment officer of asset allocation, believes that the comfort zone for the Canadian dollar is closer to 70 cents.
“With stronger economic growth in the U.S. and more moderate economic growth here, relative rate differentials favour the U.S. over Canada,” Taylor said. “Oil is not going to be strong enough – we think – to hold the Canadian dollar in. So, we have a Canadian dollar that kinda moves to 71 (U.S. cents); on the downside it might be 69 (U.S. cents).”
A 70-cent loonie could force Canadian businesses to balance the benefits of a lower Canadian dollar with Trump’s ‘Buy American’ stance.
“I think we need a 70-cent dollar just given where dynamics are at this particular juncture. If we get that, do we actually pop up on Donald Trump’s radar?” Taylor told BNN.
But not everyone is so sure a lower loonie would catch the attention of the president-elect.
“Our currency should remain inexpensive or competitive for an extended period of time. If the Canadian dollar went down to 70 cents, for whatever reason...I have a tough time believing thatTrump’s going to come onto Canada's radar screen," David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates, told BNN Wednesday. "If any country has room to make up, to restore lost share of manufacturing, Canada’s a much stronger case for that than the United States.”
“I mean, Donald Trump is America First. And that means everybody else is second,” Taylor added while discussing Justin Trudeau’s video message to U.S. Congress.
Taylor believes Trudeau’s attempt to court Congress is aimed at preserving the crucial cross-border relationship in the face of Trump’s protectionism.
“We have huge trade flows with the U.S.” Taylor said. “That’s where I think the Prime Minister – rightly so – is trying to get ahead of this issue and to position our relationship as unique and special and one that can’t be entered into lightly.”