The Canadian dollar has suffered against the US dollar in the wake of the US presidential election, and Jefferies sees this weakness as likely to continue for some time.
At 09:00 ET (14:00 GMT), USD/CAD traded 0.2% lower at 1.3992, but the pair is around 1.4% higher over the course of the last month, with the Canadian dollar falling to a four-year low against its US counterpart in the wake of the US election.
“The market has spoken following the outcome of the US election and a weak Canadian dollar is likely here to stay,” said analysts at Jefferies, in a note dated Nov. 19.
Although details of proposed policies are still to be ironed out, the initial read-through implies a less-than-helpful macro backdrop for the Canadian economy–the US is Canada's largest trading partner–following the victory of Donald Trump at the start of the month.
”Tariffs on imports, lower taxes, and proposed financial regulatory changes all spell relative headwinds, the impact of which is compounded by an already weak Canadian economy (GDP growth persistently below expectations, weak labour market, etc.),” analysts at Jefferies added.
In combination with inflation now within the Bank of Canada's target range, the US bank expects to see further central bank rate cuts.
The combination of strong rate cuts by the Bank of Canada and the expectations that a Trump presidency would be positive for the U.S. economy (and potentially generate inflation, reducing the likelihood of strong rate cuts) has weakened the Canadian dollar.
“Further, it does not look like the situation will reverse itself any time soon. Consequently, we do not see the CAD gaining ground on the USD, and as the Bank of Canada continues to cut rates, we could see additional weakness in the CAD,” Jefferies added.
