Globe and Mail: Canada wakes up to a trade war, and comes out fighting

'Depending on scale, Ottawa’s retaliatory tariffs could stoke imported inflation, wrote Karl Schamotta, chief market strategist at Corpay Cross-Border Solutions in a research note. The Bank of Canada is likely to judge that the risks tilt towards weaker growth rather than higher prices, Schamotta wrote, as the economy is still growing well below potential. “We expect investors to further downgrade their expectations for monetary tightening. At the margin, this shift in expected rate differentials should represent a headwind for the loonie.” Schamotta wrote. Ahead of the deadline, the Canadian dollar rallied after investors grew hopeful of a trade deal and the U.S. dollar dropped to a three-month low following the U.S. Treasury’s decision to double long-term bond buybacks, sparking fears of currency dilution and rising national debt. “That optimism now looks set to unwind.” Schamotta wrote. “We expect the loonie to gap lower at the Sydney/Tokyo open tomorrow as the trade-risk discount is rebuilt and bullish bets are flushed out.”'

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