Canadian dollar falls as investors buy into U.S. under Trump

The Canadian dollar is moving lower, as investors look to buy the U.S. currency in hopes a Trump administration will boost the economy.

President-elect's infrastructure spending plan seen as a positive and many expect rate hike

Investors are pitching the loonie to pile into U.S. dollars on expectations that rates will soon rise. (Jonathan Hayward/Canadian Press)

The Canadian dollar is moving lower, as investors look to buy the U.S. currency in hopes a Trump administration will boost the economy.

The loonie fell as low as 73.60 cents US Monday, having lost ground from last week's close of 73.86 cents. At the end of the day it had bounced a little higher to 73.78 cents US.

That's the lowest level since February, but not the low of the year as the Canadian dollar slipped to 68 cents in January.

The U.S. dollar is at a nine-month high against major currencies around the world and investment is fleeing emerging markets and bonds to buy into it.

Donald Trump's surprise election victory has created expectations of an interest rate increase next month by the U.S. Federal Reserve, encouraging international investment in the country.

Investors hope Trump will ramp up infrastructure spending, a strategy already in play in Canada, to boost growth and spur inflation.
President-elect Donald Trump wants to invest in infrastructure to boost the economy and investors believe that will mean a rate hike. (Jewel Samad/AFP/Getty Images)

In turn, that could spark a rate hike, while the Bank of Canada is expected to hold the line on rates.

The Fed is unlikely to move unless inflation rises to its target rate of two per cent annually. But Trump's policies would tend to encourage inflation because he'll have deficit spending,  greater protectionism and will create more construction jobs at a time the labour supply is already tight, thus boosting wages.

The Dow Jones Industrial Average hit a record high on Thursday, the last day of trading, and was up 21 points at the end of the day Monday to 18,868.

Christopher Whalen, senior managing director with the Kroll Bond Agency, noted a spike in U.S. Treasury bond yields since election day.

"The bias of the market now seems clearly to be higher rates and a steeper yield curve, in part because of Trump's ambitious plans to cut taxes and boost spending, implying higher issuance of Treasury debt and larger U.S. fiscal deficits," he wrote in a note to investors.

Lower oil prices are also putting pressure on the loonie, after an International Energy Agency‌ (IEA) report last week predicted an extended glut of crude.

On Monday, the price of benchmark West Texas Intermediate crude dropped in early trading but was up 23 cents at the close to $43.64 US.


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