Trump’s Keystone XL Boost Sends Loonie Soaring Against Peersby
Currency gains for second day, extending year-to-date rise
Keystone XL pipeline seen boosting Canada’s crude oil exports
The Canadian dollar surged after U.S. President Donald Trump moved to advance the construction of the Keystone XL pipeline, which would enable the country to ship more crude oil to the U.S. and buoy growth.
The currency rallied as much as 1 percent to C$1.3106 per U.S. dollar, outperforming all of its Group-of-10 peers and extending its advance this year to 2.1 percent. It appreciated for a second day, recovering from a two-week low reached on Friday.
The currency was at C$1.3158 per U.S. dollar at 2:22 p.m., close to its 200-day moving average of C$1.3115 in Toronto.
Trump’s decision to move forward with the pipeline that would transport Alberta oil sands crude to the U.S. Gulf Coast is a departure from the Obama administration, which rejected the project in 2015. It helped reignite a rally in the currency that was halted last week by comments from Bank of Canada Governor Stephen Poloz, who said he was prepared to cut interest rates if the U.S. administration imposes protectionist measures that derail the nation’s economy.
“The market reaction is quite aggressive, but it’s also happening in the context of broader U.S. dollar weakness, so the move in the Canadian dollar is amplified,” said Eric Theoret, a currency strategist at Bank of Nova Scotia in Toronto, who expects the currency to weaken to C$1.40 per U.S. dollar by the middle of the year. “Poloz was pretty clear last week that Canadian dollar strength was a headwind for growth and inflation. Some may have piled into bullish U.S. dollar trades only to be stopped out on this morning’s announcement.”
Trump stopped short of green lighting construction of Keystone XL, reiterating an earlier campaign pledge to seek a “better deal.” That’s not the only reason why not everyone is convinced the decision to move forward with the project is a positive for the Canadian currency.
“I was surprised by the magnitude of the move,” said Jeff Greenberg, a macro strategist at UBS Securities LLC in New York. “Over the longer run, it should mean that greater volume of Canadian crude can be sent to the U.S., but the benefits for Canada in 2017 or 2018 are hard to pin down.”