At some point the dust will settle on the Iran war and I expect the Canadian dollar to be a beneficiary. Yes, that will mean lower oil prices and that will weaken Canada’s top export but the war has also exposed one-fifth of the world’s oil to be at risk of supply disruption.
With that and a more energy-friendly government in Canada, buyers from Europe and Asia could look to Canada as an investment destination. Moreover, there should be positive global growth impacts from an end to the war that will help other Canadian exports.
The big drag weighing on the loonie this year is the USMCA trade agreement. At the moment, there are no positive indications and the clock is ticking. I think the baseline has to be that Trump will engage in brinksmanship, threats and escalation before trying to reach a deal. That’s his typical pattern and I wouldn’t expect anything else this time around. The only caveat to that is that there has been a serious boycott of the US and US products in Canada; so much so that tourism is down 34% from two years ago. Canadians are the number one tourists to the US and that’s a big hit to certain parts of the USA, including Republican-voting districts.
Comments from Prime Minister Mark Carney on the weekend, called the structural relationships with the USA a ‘weakness’ and reaffirmed his intention to move Canada away from it. That doesn’t sound like someone who thinks a deal is coming.
For now though, the chart is improving. It’s been one-way traffic since the start of April and the entire Iran war move has been retraced. With that done, it gets a bit more difficult from here but the momentum is inarguable. On the downside, the support doesn’t really kick in until 1.3500. I find it hard to see a short-term break of 1.3467 unless/until there is some clarity on the trade negotiations
