7 issues to look at for the Canadian greenback and the case for a turnaround

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Canada is on the nexus of a number of main developments that may unfold within the second half of the last decade. It is a massive problem however it’s additionally an enormous alternative that might unlock a geographically-gifted nation that is buying and selling at a reduction.

Issues I am watching:

1) Tariffs

I’ve lengthy stated that I feel they seem to be a bluff. That was a tricky name when the market was panicking initially of February however now everyone seems to be shrugging off tariff headlines and the March four, Canada/Mexico deadline would not seem like an actual one. I feel there will probably be some angst as we get near that however I proceed to consider that the true ‘ask’ from the US is an earlier renegotiation of USMCA. Given the political uncertainty in Canada, I do not see Trudeau agreeing to that however Mexico might produce other concepts and that might complicate it. In any case, I do not suppose the stakes are excessive for Canada is a renegotiation and reciprocal tariffs aren’t an issue for Canada.

2) US and International Progress

Within the larger image, the US participating in broader tariff wars is a threat for Canada through slower world progress. We’re seeing a regarding deterioration in survey-based knowledge within the US and globally. Wal-Mart this week additionally warned on US shoppers. There’s a sturdy consensus that the US election will launch some pent-up demand and enterprise executives are upbeat. There’s a completely different message from shoppers although and it may very well be so simple as: We thought Trump would carry costs down however that is not taking place.

three) China

Within the month forward, China is the spot to look at. The sentiment round China is quickly altering, and it is the DeepSeek commerce I flagged a month in the past.

That is the entire story and the fitting commerce for now. China scored a win. Purchase China.

It
additionally helps that Chinese language shares are very low-cost and the market will quickly
fall in love with the thought of stimulus on the March 7 Nationwide Folks’s
Congress (there may be nonetheless time to front-run the front-run. Markets additionally
crave underdog tales, and China matches completely—low-cost, hated, and now
“fixing” AI’s value drawback.

That March 7 date is now fast-approaching and China must ship. I sense an enchancment within the on-the-ground sentiment in China however some actual stimulus would kick it up a notch and will hearth up a worldwide commodity rally, one thing that will be profit the loonie.

four) Oil

Oil is not the massive CAD driver that it was once however we’re on the seasonal trough for crude proper now and there are indicators of a tighter market than anticipated. Chilly climate has helped to attract down distillate inventories and the US is eyeing tighter sanctions on Iran. That is steadiness proper now by expectations about an finish to the Ukraine struggle however it’s not clear how a lot further oil Russia can export, plus the pipeline issues in Kazahkstan may take months to repair. Within the larger image, it is more and more clear that US shale is tapped out as a supply of provide progress, particularly at $70 WTI. Notice that oil is presently buying and selling beneath the place it was simply previous to the Ukraine struggle.

5) Politics

On the flip of the 12 months it was a foregone conclusion that Pierre Poilievre can be the subsequent Canadian Prime Minister and with a big majority. That is not the case as polls present that presumptive Liberal management winner Mark Carney is closing in.

There will probably be some twists and turns right here however the market would favor Poilievre. Additionally crucial is how Carney runs within the common election. He is cozying as much as Liberals proper now to win the nomination however he might look to distance himself within the election and I feel he has a great learn on the heartbeat of the nation together with his slogans of “it is time to construct”.

I consider the subsequent decade in markets belongs to whoever learns to construct once more. A high-speed railway announcement this week in Canada is an effective first step however bulletins are straightforward and really constructing is tough.

The larger level is that there’s an unimaginable shift in attitudes in Canada and plenty of different locations proper now. It is assertive and hungry for financial progress. Whether or not it is Carney or Poilievre on the helm, unlocking Canadian establishments in a method that sparks building and funding is crucial.

6) Housing

It isn’t wanting good for the Canadian housing market. Inventories are quickly rising and consumers merely haven’t got the cash or credit score to purchase on the costs that sellers anticipate. The market is priced for 42 bps in easing from the Financial institution of Canada this 12 months however that is not going to assist and a few inflationary impulses are going within the unsuitable course. That would worsen on tariffs or a China-led bull market in commodities.

Essentially the most-worrisome improvement is that traders are fully out of the market, a minimum of in Ontario. The cap charges are horrible and traders on web are more likely to be sellers moderately than consumers within the coming years. The rental market is a train-wreck that may take years to kind out however the single-family market exterior of Toronto additionally has some ache coming. I are likely to suppose the poor climate recently is restraining provide and that we’ll see a surge of listings within the spring because the snow melts, that will probably be a dicey second that might point out to Canadian shoppers that they are not as wealthy as they suppose.

7) Shopper spending

Right this moment’s Canadian retail gross sales report was sturdy however not as sturdy because it first regarded. The HST vacation led to a lift in spending however it light within the advance January quantity and tariff uncertainty together with dangerous climate is more likely to result in a dismal February studying that will probably be compounded by the top of the tax vacation in March.

Canadian Tire final week stated that an early-year uptick in client confidence was “considerably erased” by tariff worries and that mortgage renewals proceed to be a headwind. They’re cautiously optimistic however the poor market response within the inventory tells a special story.

The Canadian greenback

The excellent news is that the dangerous information is usually priced in.

The Canadian greenback was crushed up within the months main as much as February. It hit a 20-year low in early February however has carved out a pleasant reversal, falling practically 600 pips from the February excessive. If it might grasp on at these ranges by means of subsequent Friday then that is an amazing start line, significantly if tariffs in early March do not occur (which is what I anticipate).

All the pieces going proper for Canada would seem like:

  1. Conservatives profitable a majority authorities and delivering daring actions to spur progress and an assertive agenda for Canada
  2. Tariff falling off the agenda and USMCA renegotiations pushed again to the scheduled H2 2026 timeline
  3. Indicators of life within the spring housing market
  4. Declining uncertainty resulting in an upside shock in client spending
  5. Actual China stimulus in March

That appears just like the case for a long-term backside this month within the Canadian greenback with a year-end price close to 1.35, and maybe decrease. A lot of that may depend upon what occurs with the US greenback as Congress will get set for a funds battle however for the primary time in years, there may be room for optimism.

It is a massive change for me as for over a 12 months, I used to be extraordinarily bearish on the loonie.

This text was written by Adam Button at www.ubaidahsan.com.



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