While the currency fell, shares in Canadian lumber companies rose as the level of the new tariffs came in at the low end of what investors were expecting.
Canadian officials shrugged off the U.S. aggression on softwood lumber and recent attacks by U.S. President Donald Trump on Canadian dairy exports as typical negotiation tactics.
The United States said on Monday it will impose preliminary anti-subsidy duties averaging 20 percent on imports of Canadian softwood lumber, escalating a long-running trade dispute between the two neighbors.
Prime Minister Justin Trudeau vowed to stand up for Canadian interests on Tuesday after the United States imposed new tariffs on softwood lumber and trade tensions between the two countries escalated, sending the Canadian dollar to a 14-month low.
Softwood lumber joins dairy as a key target for Trump, who tweeted a new attack on Canada’s supply management system for dairy on Tuesday.
Looming US-Canada Trade War Knocks Down Canadian Dollar to 14-Month Lows
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We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USDCAD prices may continue to rise.
Many traders could point to the argument that CAD is oversold on the possible 24% tariff on softwood lumber.
Positioning is less net-short than yesterday but more net-short from last week.
The number of traders net-long is 36.0% higher than yesterday and 13.3% lower from last week, while the number of traders net-short is 4.6% lower than yesterday and 76.4% higher from last week.
The following is based on research from Tyler Yell, Currency Analyst at the DailyFX division of IG Group Holdings plc (LON:IGG).