Loonie tanks post-Brexit, but benefits minimal for farmers

CNS Canada — The Canadian dollar slipped after Britain voted Thursday to leave the European Union, a trend which one financial analyst expects to continue in an otherwise uncertain environment.

But the loonie hasn’t fallen far enough to bring support to Canadian commodity markets.

“Short-term, we’re going to be dealing with the day-to-day volatility and uncertainty surrounding the aftermath of Brexit,” said Andrew Pyle, senior wealth advisor and portfolio manager for Scotia McLeod.

Recently, the Canadian dollar has taken directional cues from general risk sentiment and declining crude oil futures.

“The Canadian dollar is kind of in tricky waters right now,” Pyle added.

News emerged Friday that Britons had voted 52 per cent in favour of leaving the European Union. The Canadian dollar lost US1.37 cents throughout the day, and extended those losses into Monday morning.

Going forward, the loonie will gather direction from global capital flow and movement in the U.S. dollar. Strength in the greenback causes downward pressure on the Canadian dollar.

The movement of crude oil futures, which are likely to lose further ground, will also push the loonie lower, Pyle said.

“I think Brexit is really going to take the steam out of the crude market short-term,” he said.

However, the Canadian dollar has held above US76 cents since Friday, which Pyle said has been a support level since the beginning of April.

That means right now, Brexit hasn’t done much in the way of giving Canadian agricultural producers a competitive edge.

“We’re still not as competitive as we were earlier this year, in terms of currency,” Pyle said.

Market watchers are in the midst of assessing how the EU referendum could affect global trade deals. Canada and the EU are in the midst of their respective approval processes for their Comprehensive Economic and Trade Agreement (CETA), for which the legal review was completed at the end of February.

“With respect to Canadian trade with the EU and the U.K., it is clear that the (CETA) is an agreement between Canada and the European Union,” the Canadian Cattlemen’s Association said in a separate statement Monday.

In other words, “If the U.K. is not in the EU, then they will not be a party to the CETA.”

Thus, the CCA said, Canada will have to sort out whether the “fundamental understanding of the value of the CETA remains valid” without U.K. involvement.

Increased market access to the U.K. for Canadian beef, for example, would have been less than 10 per cent of the value of the CETA for the beef sector, the CCA said.

The effects Brexit will have on currency, equity and commodity markets are also not clear just yet, but the Canadian dollar likely isn’t going to rally this year.

“It’s unlikely that we’re going to see fundamentals that would support continued strength in the Canadian dollar,” Pyle said.

The loonie could move into a sideways pattern, buffeted by supportive forces, or into a downward cycle, Pyle said.

More information about what Brexit means for markets will become clear throughout the week, following central bank and G7 discussions.

“I hope that by Canada Day we’ll have a lot more information about where the potential probabilities are,” Pyle said.

— Jade Markus writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting. Includes files from AGCanada.com Network staff.