Loonie on hottest streak since 1970 as US dollar slips

The Toronto Stock Exchange’s S&P  TSX composite index fell 43.51 points at 15,397.85

The Canadian dollar tumbled Wednesday following comments from Bank of Canada Governor Stephen Poloz that an interest-rate cut "remains on the table".

Throughout the USA presidential campaign, we heard much from Donald Trump about how he wants to bring jobs and industry back to American soil, rip up NAFTA, build walls and enact all other manners of protectionist policies.

The currency surged 1 percent to an nearly three-month high of C$1.3044 per US dollar on Tuesday, accelerating gains after President-elect Donald Trump said the greenback was "too strong".

While any kind of tax on USA imports is going to hurt Canada, the Trump administration isn't clearly in favour of the Republican-proposed border adjustment tax, says Aubrey Basdeo, head of Canadian fixed income for BlackRock Asset Management.

Bearing in mind the important assumptions embedded in its forecast, the Bank projects that Canada's real GDP will grow by 2.1 per cent in both 2017 and 2018.

The bank says the outlook only factors in the impact of the expected US fiscal boost, which would help Canada through increased demand, and the effects of Trump's plan to cut corporate taxes, which it says would hurt Canada's competitiveness.

The Canadian Dollar has fallen sharply against major competitors after the Bank of Canada communicated it is willing to cut interest rates in the near future. It acknowledged that "protectionist trade measures" (e.g., a border tax on US imports) could have "material" consequences for Canadian trade with the U.S.

"The outlook, however, is subject to considerable uncertainty, given the unknowns around policy actions by the incoming US administration, particularly concerning trade".


If American is made great again, as Donald Trump has said (and trademarked), will Canada be better off?

"Should any of those downside risks materialize and put our inflation target at risk then we would have the room to manoeuvre", Poloz said in response to a question on whether the Governing Council discussed the possibility of a cut during their interest rate deliberations this week.

Euro to Canadian Dollar exchange rate: 1.4101, up 0.9%.

It's the pullback in the US dollar that's been the catalyst behind the loonie's move this year, according to Mark McCormick, North American head of foreign-exchange strategy at Toronto-Dominion Bank.

The U.S.is on a divergent rate path from Canada, lending strength to the greenback, which has surged over the past three years.

Pound to Canadian Dollar exchange rate: 1.6254, up 0.3%.

Inflation has been lower than expected since October, mainly because of declines in food prices with core inflation below 2% due to excess capacity. "Exports and investment, particularly in the energy sector, is probably going to add about 1% to GDP in 2017".

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