It has become a tradition in North America marking February 2nd as Ground Hog Day. It gives the many of us stuck in a deep freeze, hope that a (+1 degree) reading on the thermometer comes sooner rather than later. 

One thing that has arrived is a new Trump Administration that hit the pavement running after the Inauguration. We have witnessed, an upward trajectory within markets based on the potential for things to get better economically and socially. So much has transpired that it would make the head of Linda Blair from the movie, “The Exorcist” spin multiple times in both directions. Yet, with the discussion of Tariffs, volatility has reigned supreme because of the unknown. 

Meanwhile, the threat of Tariffs caused anxiety for both Canada and Mexico as the deadline of February 1st approached. You can agree or disagree but his tactic to use tariffs as a means to get results has worked. Trump has been forthcoming, giving ample warning,  that if both Canada and Mexico did not tighten up their borders, a 25% tariff would be imposed. 

President Trump might not be the most polished individual in terms of his expressions, but you have to understand that his recent experiences have made him bolder and wiser. A policy based on retaliation with a Goliath would be devastating for all. 

Lo and behold, though you might say this is extortion or blackmail, the Mexicans capitulated and sent 10,000 soldiers to reinforce the border. Then after the RCMP made the biggest bust of a super meth and fentanyl laboratory in the interior of British Columbia, Canada will establish a fentanyl czar to combat the cartels and increase deterrents. 

Therefore why are we condemning him for actually getting our governments to tackle a problem that has killed and destroyed people for profit, leaving many homeless and destitute, especially over the last nine years specifically in Canada?

Consequently, for many businesses dependent on either exports or imports, the volatility in the currency market can cause major anxiety. With adherence to his requests, the tariffs have been repealed for 30 days and the USD Index slid to the 108.0 level. The Canadian Dollar went from below the 0.6770  level, now approaching the 0.70 cents level.  

For importers, the rise in costs could be devastating as it directly takes away from the established profit margin. Another cause for uncertainty is the ability to sell a product to a market that now creates barriers and promotes homegrown businesses by levelling the playing field with the implementation of tariffs and tax incentives. In today’s world, the superiority of a specific product and an improved taxation system is a company’s only saving grace. 

On the other hand, Exporters benefit from a lower Canadian Dollar as profit margins are accentuated, that is depending on the Cost of Goods. To reiterate, the imposition of tariffs could warrant a client to buy locally rather than import a product even with a 40-50% improvement in purchasing power. 

Unless the rules of engagement are clear, trade could become compromised. Evidently, a business can protect itself from volatility by incorporating hedging strategies as part of its financial strategy. These FX tools are used to bring cost certainty to businesses when dealing with foreign customers and suppliers. 

Stability, in currency markets as well as regulations, provides certainty. Protecting profit margins is paramount. Even though the trend might seem favourable by improving the bottom line, it is when unexpected events turn a profit into a loss very quickly, potentially making a business obsolete almost overnight. 

Note: Situations are different for all businesses and it’s best to speak to those considered expert in their field, like myself who can assist in developing strategies with the aim of improving cost certainty and maintaining profit margins as the main objective. I am always open to help in shedding light and understanding your specific situation and always willing to help in any way possible.

Today we see Weekly Jobless Claims rise to 219k from the previous revised (208k). A small blip as Consumer Confidence is building while tax cuts will provide the biggest boost and incentive to work. While the Canadian Federal government made people dependent on not being productive, the initiative to not tax tips or overtime in America will be an enormous catalyst for productivity providing incentives to the workforce. 

Consumer confidence can be seen in the recent ADP  Employment (American Private Sector). It was up 183k vs expected (150k). Keep in mind, that it is Private sector employment that has always been the engine of economic growth.