Bully's Mismatch to Send Canadian Dollar Tumbling, Taylor Says

(Bloomberg) -- One of the most prominent currency-markets gurus says the Canadian dollar will plunge to levels not seen in more than 15 years as trade turmoil intensifies.

John R. Taylor, who formerly headed what was then the world’s biggest currency hedge fund, says his analysis of statistical patterns projects the loonie to weaken about 20 percent to C$1.60 per U.S. dollar by the end of next year. It hasn’t been that weak since August 2002. Canada’s currency looks bleak by the charts and given the potential hit to the nation’s exports as President Donald Trump tinkers with Nafta and announces tariffs on metals.

“The sharp strengthening of the USD since the start of February is the beginning of this move and the cycles say that it has about two years and three months to go,” Taylor said Wednesday in his newsletter Taylor Global Vision. “A move to 1.3350 in the month of May is the first step in this move back toward the highs of the start of this century. We would bet on 1.60 by the end of next year.”

Prime Minister “Justin Trudeau and Canada will fight back but his country is only 10 percent of the U.S. in size –- a typical bully’s mismatch and the currency reaction whether desired or not will be that the Canadian dollar weakens relative to the U.S. dollar,” said Taylor.

The Bank of Canada kept policy rates unchanged Wednesday and included growing global trade tensions among reasons for not seeing any rush to lift rates.

U.S. Commerce Secretary Wilbur Ross gave some hope that Canada and Mexico may be spared from the new steel and metal tariffs that are set to put in place by the end of this week. Ross said on Bloomberg TV that a “surgical approach” to tariffs could be used and it’s not “inconceivable” that some countries -- like Canada and Mexico -- would be exempt.

Traders aren’t quite buying it yet, with the loonie weakening about 0.8 percent Wednesday to 1.2980 per dollar.

To contact the reporter on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net.

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Dave Liedtka, Mark Tannenbaum

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