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Mar 16, 2018

‘A tough slog’: Loonie at lowest since June amid trade tension

What's behind the loonie's recent struggles

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The Canadian dollar fell to its lowest level since last June on Friday, as the currency hunts for a floor amid a host of factors that are weighing it down.

The loonie was at 76.37 U.S. cents at the close of Friday's trading, more than five cents below its year-to-date high of 81.52, and extending a rough stretch that has seen the dollar post just five winning sessions since the middle of February.

“It’s been a tough slog for the Canadian dollar,” said Shaun Osborne, chief FX strategist at Scotiabank, in an interview with BNN.

“The [loonie] has been one of the worst performing major currencies so far this year and it’s looking pretty friendless on the crosses this morning. And it’s not just against the U.S. dollar; we’re seeing the [loonie] slip against the yen, the euro, and the pound.”

There's been no shortage of drivers weighing on the loonie. Bank of Canada Governor Stephen Poloz has made it clear in recent commentary that his team will be cautious with its policy adjustments, and that's compelled the market to reconsider its conviction in the timing of future rate increases. Indeed, the implied probability of a 25-basis point increase at the bank's next meeting on April 18 is 27.5 per cent, compared to 54.1 per cent on Feb. 16.

Economic data has also served up some disappointments over the last month, with the latest manufacturing sales, retail sales, and employment numbers all missing expectations.

Furthermore, trade uncertainty is taking a toll on the Canadian dollar. Talks to renegotiate the North American Free Trade Agreement are dragging on as Canada hopes to preserve its exemption from the Trump administration's recently-announced tariffs on steel and aluminum tariffs.

"Over the last couple of weeks, as we've seen the proposals for some of these tariffs come into play, there has obviously been a lot of concern over the potential impact as NAFTA is being renegotiated," said Michael Scanlon, managing director and portfolio manager at Manulife Asset Management, in an interview with BNN.

"So a couple issues are adding up and that's generating the weakness [for the dollar]."