Last week, the Trump administration launched a trade probe against China and other countries that export cheap steel.
“I think it just shows these are outstanding issues they’re going after hard,” Chandler said. “These are outstanding issues from the Obama administration, and they are just playing harder ball.”
TD Securities strategists said the tariffs had been expected by the industry and at an average 20 percent, were less than the 30 to 40 percent expected. They say the U.S. action is in response to what it views as unfair subsidies for the Canadian lumber industry in British Columbia, Ontario, Alberta and Quebec, where the government allows private firms to source trees from public land.
The TD strategists said they believe the U.S. dollar-Canadian dollar pair is pricing in too much risk of a larger trade war with the U.S. “With dairy and small scale macroeconomic issues and likely to have a spillover into the broader economy, we favor selling the USDCAD rallies,” they wrote in a note.
Chandler said the U.S. dollar would react if there are actions that appear to be protectionist. But that’s a double-edged sword. While it seems a negative that could cheapen the dollar, Chandler said there would be more foreign capital coming into the U.S. and that could drive the dollar higher.
“How I read this is markets were discounting a very benign scenario, and this is a wake-up call” said Andres Jaime, global foreign exchange and rates strategist at Barclays, adding the peso was being hit by the news about Canada. “The administration is willing to push for some changes in the way the U.S. trades. … The general story hasn’t changed that much. the U.S. is not ripping up NAFTA or something very extreme.”‘
Chandler said the Canadian dollar was weak before the announcement was made and speculators have been amassing a short in it. At CA$1.36, it was near CA$1.3575, the 50 percent retracement of a move to CA$1.47 last year, he said.
Besides currencies, U.S. homebuilder stocks moved on the news, declining in early trading Tuesday. But Canadian lumber companies, like Canfor, Norbord and Interfor were all higher, after the tariffs were seen as less severe than expected.
