How the U.S.’s Weak Dollar Policy Will Affect Your Canadian Holdings

The U.S. administration has made it clear it is pursuing a “weak dollar” policy. Find out what it means for Magna International Inc. (TSX:MG)(NYSE:MGA) and several other stocks that may be in your portfolio.

| More on:
The Motley Fool

The U.S. administration has made it extremely clear by now that it is committed to pursuing a “weak dollar” policy as far as the foreign exchange markets are concerned.

The weak dollar policy being pursued by the U.S. and Treasury secretary Steve Mnuchin will see the U.S. depreciate the value of its currency against global peers, including China, the European Union, and Canada.

The basic idea behind this strategy is that a weaker U.S. dollar makes goods and services produced in the U.S. appear cheaper to foreign buyers, which helps to stimulate demands for U.S. exports.

As many of the companies listed on the U.S. exchanges rely on exports to international markets as a large part of their businesses, the weak dollar policy is generally seen as a good thing for the stock market.

This is at least partially the reason for the S&P 500’s impressive rise since the start of 2017, when the Trump administration officially took control of the White House.

But while the weak dollar policy may be good for the U.S. markets, there are some less than desirable consequences for Canadians — but some positive impacts, too.

Let’s take a look at some of the companies most affected by the U.S. weak dollar policy.

Magna International Inc. (TSX:MG)(NYSE:MGA)

Magna, one of North America’s largest auto parts manufacturers, and based with headquarters in Aurora, Ontario, stands to be one of the companies most affected by the U.S. policy.

While the policy is aimed to reduce the price of U.S. exports, it also has the opposite effect of making imports more expensive for Americans.

A large part of Magna’s business is exporting manufactured components to the U.S., and a weaker U.S. dollar will make Magna’s products appear more expensive to its American customers, meaning the company may be forced to take discounts on the parts it sells to compete with American counterparts.

This dynamic shapes up as an advantage to Magna’s American peers, like, for example, BorgWarner Inc., which is in part why the policy is designed the way it is, but it may not be so great for Magna and other Canadian parts manufacturers like Martinrea International Inc.

Nutrien Ltd. (TSX:NTR)(NYSE:NTR)

Nutrien is the name of the newly formed company to arise out of the long-awaited merger between Potash Corp. and Agrium, which officially closed earlier this year.

The new company is the world’s largest producer and marketer of fertilizer products and unquestionably a dominant player in the global agri-business industry.

While a weaker U.S. dollar may not be welcome news for exporters like Magna or even Saputo Inc., which exports a lot of its dairy products to the U.S. and Australia, it does bode well for commodity prices.

Commodities, like oil, steel, corn, and potash, tend to move in the opposite direction of the U.S. dollar.

So, while the U.S. dollar declines, corn and soybean prices should be expected to rise, which in turn gives farmers and agri-businesses more capital, allowing them to apply even more fertilizer on next year’s crops.

Bottom line

Foreign exchange markets are notoriously difficult to trade profitably.

While it’s pretty clear the direction that the U.S. government wants to take the dollar today, that could easily change given a retaliatory response from China or one of its other major trading partners.

That aside, Foolish investors may want to double-check their portfolios to see if they have any holdings that would stand to be disproportionately affected by the latest U.S. policy change.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jason Phillips has no position in any of the stocks mentioned. Magna and Nutrien are recommendations of Stock Advisor Canada.

More on Dividend Stocks

Confused person shrugging
Dividend Stocks

Passive Income: How Much Do You Need to Invest to Make $625 Per Month?

This retirement passive-income stock proves why investors need to always take into consideration not just dividends but returns as well.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Secure Your Future: 3 Safe Canadian Dividend Stocks to Anchor Your Portfolio Long Term

Here are three of the safest Canadian dividend stocks you can consider adding to your portfolio right now to secure…

Read more »

money goes up and down in balance
Dividend Stocks

Is Fiera Capital Stock a Buy for its 8.6% Dividend Yield?

Down almost 40% from all-time highs, Fiera Capital stock offers you a tasty dividend yield right now. Is the TSX…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How to Use Your TFSA to Double Your TFSA Contribution

If you're looking to double up that TFSA contribution, there is one dividend stock I would certainly look to in…

Read more »

woman looks at iPhone
Dividend Stocks

Retirees: Is TELUS Stock a Risky Buy?

TELUS stock has long been a strong dividend provider, but what should investors consider now after recent earnings?

Read more »

Concept of multiple streams of income
Dividend Stocks

Is goeasy Stock Still Worth Buying for Growth Potential?

goeasy offers a powerful combination of growth and dividend-based return potential, but it might be less promising for growth alone.

Read more »

A person looks at data on a screen
Dividend Stocks

How to Use Your TFSA to Earn $300 in Monthly Tax-Free Passive Income

If you want monthly passive income, look for a dividend stock that's going to have one solid long-term outlook like…

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

Passive Income Seekers: Invest $10,000 for $38 in Monthly Income

Want to get more monthly passive income? REITs are providing great value and attractive monthly distributions today.

Read more »