FX Flash – Trade tariffs pressure the Loonie

by: Roy Teo

  • US to impose 20% tariff on Canadian lumber exports

 

  • Geopolitical risks to cap JPY weakness

 

FX-Flash-Trade-tariffs-pressure-the-Loonie-25-Apr-17.pdf (75 KB)
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US to impose 20% tariff on Canadian lumber exports

Overnight, the Canadian dollar (CAD) was sold off from 1.34 to 1.35 against the US dollar, weighed by weaker crude oil prices. The selling pressure persisted early this morning after it was reported that the US will impose a 20% tariff on Canadian softwood lumber exports. This is more significant than potential tariffs on dairy exports as lumber accounts for about one quarter of Canadian’s non-energy exports and the US market takes more than 70% of Canada’s lumber exports. The tariff will be applied retroactively 90 days. The risk of potential stop losses above key resistance level of 1.3590 (USD/CAD) being triggered has increased significantly.

 

Geopolitical risks to cap JPY weakness

Despite tail risks of a Frexit declining, we expect ongoing geopolitical risks in the Korean peninsula to provide some safe haven support to the Japanese yen (JPY). All eyes will be on US President Donald Trump announcement on tax reform tomorrow. The lack of details is likely to result in market disappointment which will weigh on USD/JPY. According to data from the Depository Trust and Clearing Corporation, there are significant large option expiry strikes this week around 109-110. As a result, USD/JPY is likely to trade within reasonable range in the coming days.