CC&L Financial Group Ltd.

US money growth is slowing, suggesting less support for the economy and improving prospects for rate cuts.

Six-month growth of the preferred narrow and broad aggregates here fell to 6.6% and 5.6% annualised respectively in April, down from recent peaks of 8.6% and 6.7% – see chart 1.

Chart 1

Chart 2 shows key influences on broad money expansion. Strength in late 2024 / early 2025 was driven by monetary deficit financing initiated by the Treasury (“Treasury QE”). The six-month running total of such financing, however, fell sharply in April, reflecting a recent reduction in the stock of Treasury bills coupled with a rebound last month in the Treasury’s cash balance at the Fed.

Chart 2

Another significant contributor to the monetary slowdown has been a decline in commercial banks’ net external assets. Changes in such assets are the counterpart of the basic balance of payments position. This position has weakened as tariff front-running has boosted the trade deficit, while negative and chaotic policies have discouraged portfolio capital inflows.

Fed QT has remained a drag on broad money growth but the six-month impact is moderating, reflecting the April taper.

The monetary slowdown has also been mitigated by a pick-up in bank loan growth.

A consideration of prospects for these influences suggests that money growth will moderate further.

As previously discussed, the Treasury’s financing plans, based on a lifting of the debt ceiling, imply a sizeable negative impact in the six months to September as issuance resumes and the Treasury’s balance at the Fed is restored to its prior level – chart 3.

Chart 3

The Fed could taper QT further to ease associated pressure on bank reserves but may not fully offset the Treasury drag.

The basic balance of payments may remain weak as foreign investors diversify away from US exposure.

The recent pick-up in bank loan growth, meanwhile, partly reflects tariff-related stockbuilding and may slow as this moderates. Acceleration was signalled by the Fed’s senior loan officer survey but corporate credit demand balances fell back in the latest (April) report.

“You are what you eat.”

The importance of gut health has been gaining a lot of attention in the last couple of years. There has been research highlighting the importance of gut health and how it contributes to the better overall health of an individual. More research is emerging, but many experts believe that we are still at the tip of the iceberg in terms of understanding the incredible role that the gut has to play in our bodies.

The gut is responsible for breaking down the food that we eat and absorbing nutrients. The trillions of microorganisms that live inside the gut are meant to help boost the immune system, help with weight management and stabilize the body’s blood sugar levels, among many other functions. These microorganisms are impacted by the foods we ingest; eating nourishing whole foods rather than processed foods can promote greater colonization and multiplication of the gut bacteria, improving overall health. Numerous studies have shown that ultra-processed foods – typically high in fat, sugar and additives like emulsifiers – can alter the gut microbiome and trigger chronic inflammation. Since the discovery of the gut microbiota’s role in health, research on how diet affects it has grown significantly.

Ultra-processed foods are industrially manufactured, highly palatable and convenient, but they often have poor nutritional value. Their consumption is especially high in high-income countries where they contribute a substantial portion of daily energy intake. As incomes rise, dietary patterns shift toward these types of foods, leading to increased rates of non-communicable diseases such as obesity, type 2 diabetes and cardiovascular conditions. This rise in disease burden in wealthier nations is closely linked to both changes in diet and lifestyle, including more sedentary behaviour and urbanization.

Given the negative impact of ultra-processed foods on gut health and their association with chronic diseases in high-income countries, there is growing interest in strategies to support and restore a healthy gut microbiome. One such approach is the use of probiotics which are live microorganisms that help increase the diversity of the gut microbiome and enhance overall gut health. With rising consumer awareness of gut health’s importance, probiotics have gained popularity as a vital component of dietary supplements and functional foods. Beyond gut health, probiotics contribute to a stronger immune system.

A significant portion of the body’s immune cells lives in the gastrointestinal tract, and a healthy microbiome is essential for optimal immune function. Probiotics can enhance immune response, reduce the incidence of respiratory infections and may even help manage allergic conditions. Furthermore, emerging research suggests potential mental health benefits linked to the gut-brain axis, indicating that probiotics might help alleviate anxiety and depression symptoms. Among the companies leading this movement, BioGaia stands out due to its strong scientific foundation, innovative products and dominant market presence.

BioGaia

BioGaia AB (BIOGB SS), a Swedish biotechnology company, has positioned itself as a global leader in probiotic development, specifically in the medical-grade and pediatric segments. With over 30 years of research, BioGaia focuses on developing probiotic products based on robust scientific research. Their flagship strain, L. reuteri DSM 17938, is backed by numerous clinical studies demonstrating its effectiveness in treating infant colic, reducing diarrhea in children and improving oral health.

One of BioGaia’s key strengths is its commitment to science and partnerships with academic institutions and healthcare professionals. Unlike many supplement companies that rely on generalized claims, BioGaia ensures its probiotics are clinically tested and validated for specific health conditions. This evidence-based approach has earned the company credibility and trust among pediatricians, dentists and gastroenterologists worldwide.

Additionally, BioGaia has achieved a strong market presence through strategic global distribution. Its products are available in over 100 countries, either under the BioGaia brand or through licensing partnerships with pharmaceutical companies. This extensive reach, combined with a focus on high-quality, well-researched products, has helped BioGaia capture significant market share in the growing probiotics industry.

UK April inflation numbers were much less bad than reported.

Annual headline and core CPI inflation rose by 0.9 pp and 0.4 pp respectively from March, to 3.5% and 3.8%. These increases, however, were entirely attributable to hikes in government-controlled prices and vehicle excise duty (VED).

Water and sewerage charges rose by 26% in April versus 8% a year earlier, boosting annual headline and core rates by 0.18 pp and 0.23 pp respectively.

“Other services for personal transport equipment” – a category dominated by VED – rose by 19% versus 4% a year ago, adding 0.22 pp and 0.28 pp to headline and core rates.

The household energy price cap was raised by 4.7% versus a 12.4% fall in April 2024, boosting the headline rate by 0.65 pp.

Summing the above, official actions added 1.05 pp to the headline rate and 0.51 pp to core – more than the actual March-April increases.

Accordingly, the adjusted core rate calculated here fell from 3.2% in March to 3.1%, equalling its recent low (in December and September 2024) – see chart 1.

Chart 1

This measure, moreover, takes no account of Easter timing effects, which may have further inflated the April outturn. For example, air fares rose by 27% last month versus 7% in April 2024, implying a 0.13 bp lift to annual core.

Underlying softening is consistent with lagged money trends and sterling appreciation – the effective rate is currently 3% above its 2024 average level and 7% higher than in 2023.

The MPC is concerned that another inflation pick-up, although unrelated to monetary policy, will generate “second-round” effects. Still-subdued money growth, currency strength and a weakening labour market argue for a relaxed view.

- May flash PMIs suggest a small recovery in global manufacturing new orders, probably reflecting tariff front-running (see charts).
- By contrast, the global earnings revisions ratio moved deeper into negative territory, led by Europe, consumer areas and energy (see charts).
- US nominal and real 10-year Treasury yields remain within their recent ranges despite the fiscally irresponsible budget bill (see charts).
- US broad money has slowed, suggesting less support for the economy / equities (see charts).
- Upward pressure on the RMB is opening up space for additional monetary policy easing (see charts).
- Slowing wage growth is having the same effect in the Eurozone (see charts).
- UK April inflation numbers were better than reported: a measure of annual core inflation ex. policy effects fell back to its December level (see charts).

DM flash results suggest that global manufacturing PMI new orders recovered slightly in May, while services new business slowed further:

Chart 1 showing Global PMI New Orders / Business

The manufacturing recovery was driven by the US component and probably reflects demand being pulled forward to avoid tariff-related price hikes:

Chart 2 showing Manufacturing PMIs

By contrast, the global earnings revisions ratio moved deeper into negative territory:

Chart 3 showing Global Manufacturing PMI New Orders & MSCI ACWI Earnings Revisions Ratio (IBES.SA)

Ratios fell across markets, with the Eurozone / UK particularly weak, probably reflecting currency strength:

Chart 4 showing Earnings Revisions Ratios (MSCI Indices, IBES, sa)

Sector wise, energy and consumer discretionary / staples led on the downside, with utilities, tech and financials showing relative resilience:

Chart 5 showing MSCI World Sector Earnings Revisions Ratios (IBES, sa)

Industrials and staples have performed better YTD than suggested by their current revisions ratio rankings, while tech and health care have lagged their rankings:

Chart 6 showing MSCI World Sector Price Indices Relative to MSCI World, 31 December 2024 = 100

US nominal and real 10-year Treasury yields remain within their recent ranges despite the fiscally irresponsible budget bill:

Chart 7 showing US 10y Treasury Yields & Breakeven Inflation

The stockbuilding cycle is moving towards a peak and yields usually fall during downswings (exception: 2022-23 because of high inflation):

Chart 8 showing G7 Stockbuilding as % of GDP (yoy change) & US 10y Treasury Yield

US broad money has slowed, suggesting less support for the economy / equities:

Chart 9 showing US Broad Money M2+ & Weekly Proxy (% 6m annualised)

Japanese annual headline / core CPI inflation was little changed in April but numbers were flattered by an increase in education subsidies:

Chart 10 showing Japan Consumer Prices (% yoy)

Adjusted core inflation rose but remains below 2%.

The 10-year JGB yield is back around its late March high but the 30-year has risen c.50 bp since then, contributing to upward pressure on global long-end yields:

Chart 11 showing Papan JGB Yields

Chinese f/x settlement data confirm that the authorities intervened to hold down the RMB in April, as had been suggested by CNH / CNY forwards:

Chart 12 showing China Net F/x Settlement by Banks Adjusted for Forwards ($ bn) & Forward Premium / Discount on Offshore RMB (%)

The offshore premium has risen further so far this month.

A currency inflow eases monetary conditions directly and opens up space for additional policy measures.

Eurozone negotiated wage growth slowed sharply in Q1, as had been suggested by the ECB’s wage tracker, which points to further moderation:

Chart 13 showing Eurozone Negotiated Wages & ECB Wage Tracker (% yoy)

April rises in UK annual headline and core CPI inflation were entirely driven by government-administered prices (energy price cap, water bills, vehicle taxes), with Easter timing effects possibly also a factor (e.g. air fares):

Chart 14 showing UK Consumer Prices (% yoy)

Adjusted core inflation fell back to its recent (December) low.

CALGARY, AB, May 23, 2025 – Oakcreek Golf & Turf LP (“Oakcreek”), a leading distributor of Toro commercial turf equipment, today announced the acquisition of L.L. Johnson Distributing Company, Inc. (“LL Johnson”) and Midwest Turf & Irrigation (“Midwest Turf”), which together represent substantially all of the assets of Pattlen Enterprises, Inc. Terms of the transaction were not disclosed.

For 50 years, LL Johnson in Denver, Colorado and Midwest Turf in Omaha, Nebraska, have been recognized as leading distributors of commercial turf maintenance and irrigation equipment, systems and parts to customers located across the US Rockies and Midwest. They are distributors of Toro equipment, along with a broad selection of equipment and solutions from other leading manufacturers. These products serve a variety of end markets including golf courses, sports complexes and stadiums, municipalities and other commercial and residential uses.

“We are excited to welcome LL Johnson and Midwest Turf into the Oakcreek family,” said Patrick Nolan, CEO of Oakcreek Golf & Turf LP. “Their industry knowledge, customer relationships, and talented team are a perfect fit with our long-term vision of becoming a best-in-class distributor to our OEM partners. Together, we look forward to delivering even greater value to our customers.”

“I’m very pleased to see our business, built over many decades by an exceptional team, being acquired by Oakcreek,” Jim Johnson, CEO of Pattlen Enterprises, Inc. said. “Oakcreek’s customer-first mentality aligns perfectly with our own. I’m confident that this partnership will lead to continued success for the decades ahead.”

Simon Gélinas, Managing Director at Banyan Capital Partners, said, “Jim has built a wonderful business in LL Johnson and Midwest Turf and we are privileged to support the next phase of its journey. Banyan is committed to building industry leaders and we believe this is an ideal fit.”

LL Johnson and Midwest Turf will continue to operate under their existing names, ensuring a smooth transition for employees, customers and partners. The integration process is expected to be completed over the coming months, with a focus on maintaining continuity and strengthening our collective offering.

About Pattlen Enterprises, Inc.

Pattlen Enterprises, Inc. is a full-service distributor of Toro commercial equipment, comprising two entities: LL Johnson in Denver, Colorado and Midwest Turf in Omaha, Nebraska.

Denver-based LL Johnson (formerly named Barteldes Seed Company) was founded by Leonard and Patt Johnson in 1976. Soon after, Omaha-based Midwest Turf & Irrigation (formerly Midwest Toro) was added in the fall of 1980. These two distributorships then combined under the corporate name of Pattlen Enterprises. In 2005, Leonard’s son James purchased the company.

About Oakcreek Golf & Turf LP

Oakcreek Golf & Turf LP is Western Canada’s full-service distributor of Toro Commercial Turf Care Equipment, Toro Golf Irrigation Equipment, Yamaha Golf Cars and Kässbohrer (PistenBully) snow grooming equipment. Oakcreek’s head office is in Calgary, Alberta and has facilities across Western Canada. In 2017, Oakcreek expanded its coverage into the southwestern United States with the acquisition of Simpson Norton Corporation, based in Phoenix, Arizona. Oakcreek is owned by Banyan Capital Partners, a Canadian private equity firm, and its senior management team. www.oakcreekgolf.com

About Banyan Capital Partners

Founded in 1998 and under current management since 2008, Banyan Capital Partners is a Canadian-based private equity firm that makes equity investments in middle-market businesses throughout North America. Through a long-term investment approach, Banyan has developed into one of Canada’s leading middle-market private equity firms with an established track record of success in providing full or partial liquidity to founders, families and entrepreneurs and helping them take their business to the next level. For more information, please visit banyancapitalpartners.com.

Banyan is part of Connor, Clark & Lunn Financial Group Ltd., an independent, employee-owned, multi-boutique asset management firm with over 40 years of history and offices across Canada and in the US, the UK and India. Collectively managing over CAD142 billion in assets, CC&L Financial Group and its affiliate firms offer a diverse range of traditional and alternative investment products and solutions to institutional, high-net-worth and retail clients. For more information, please visit cclgroup.com.

Media Contact

Banyan Capital Partners
Simon Gélinas
Managing Director
Banyan Capital Partners
(416) 291-0029
[email protected]

One of the joys of investing in the world of small caps is discovering a company that has carved out a niche in the most unexpected of markets. Most of these companies go unnoticed as part of a larger value chain, their products often hidden from the eyes of the end consumer. The idea of a “hidden champion” toiling away in deliberate obscurity while quietly dominating a niche sector or technology was first highlighted by renowned management consultant Hermann Simon in his book – “Hidden Champions of the Twenty First Century.”

What is a hidden champion, one might ask? According to Simon, hidden champions have the following three attributes:

They are in the top three of their chosen global niche.
They generate revenue between $5 million and $5 billion.
They maintain obscurity in terms of brand recognition (B2B in most cases).

Some of the attributes that define them are also what makes them successful. The key lessons we can take from observing hidden champions are:

Ambition: Despite their size, they set extremely ambitious goals. It is market leadership or bust. Goals are invariably long-term focused with decades in mind.
Specialization: Their preference is both extreme focus and depth of focus. They identify narrow markets and specialize in them.
Globalization: Their specialization is then unleashed on global markets. They aggressively hunt for new markets and prefer to serve those markets with their own subsidiaries instead of getting tied up with third parties.
Innovation: Scarcity of resources due to their small size means they need to be much more effective with R&D. Thinking outside the box means you need to innovate not just products, but processes as well.
Customer closeness: Large customers can be demanding and often want the lowest price. Hidden champions respond by engaging closely with customers. Providing advice and system integration services by closely engaging with customers creates stickiness and deep moats.
Financing: Most hidden champions are self-financed with ownership that is long-term oriented and conservative with capital allocation.
Culture: Culture is high performance with more work to go around than headcount. Turnover is low and managers tend to have long tenures.

Hidden champions tend to be everywhere in the world of small caps, including in emerging markets. In our emerging market small cap portfolio, we have a good representation of hidden champions serving a diversity of end markets. Take Hongfa Technology Co. Ltd. (600885 CH), a Chinese company which has carved out a niche in power relays and is the global leader with over 20% market share. Power relays are a crucial component of any electric equipment that is a part of modern life. They convert a low power input into a high power outcome. From home appliances to industrial equipment, alarms and automobiles, its relays form a ubiquitous part of our lives. As the world upgrades its power grids and AI drives higher power consumption, Hongfa’s high-voltage products should see enhanced demand in the coming years.

Similarly, we own a company in Korea called Vitzrocell Co. Ltd. (082920 KS) which is among the top three players globally in manufacturing primary batteries. Primary batteries have high energy densities, a low discharge rate (allowing them to run for 10 years and beyond) and a wide operational temperature range (-55°C–+85°C). This makes them ideal for use in harsh conditions that require extremely high reliability like oil and gas equipment, rockets and utility meters.

Finally, over in India, we own Suprajit Engineering Ltd. (SEL IN), which is the second largest global manufacturer of control cables and third largest manufacturer of halogen lamps. Suprajit makes over 15,000 types of control cables used in passenger vehicles, two- and three-wheelers and off-highway vehicles like tractors and recreational vehicles. Control cables, as the name suggests, transmit control signals to control equipment versus power cables that transmit high voltage power.

Suprajit is the textbook example of a hidden champion with their stated goal of being a leader in control cables, growing a global manufacturing footprint, deep relationships with leading OEMs and nimble, low-cost R&D efforts leveraging talent in India. With most of global manufacturing now located in emerging markets, we see a landscape littered with hidden champions waiting to be uncovered.

Fixed income investments are versatile, addressing a range of investor goals. Defined benefit pension plans use fixed income as an interest rate hedging tool, typically through longer duration securities, to match liability risk. For investors like endowments, foundations and First Nation trusts, who focus on generating absolute returns across different market environments, stable returns is generally the primary objective.

This article summarizes some of the discussion at a recent Strategic Exchange webinar on the outlook for fixed income and the range of strategies available to investors to manage the challenges in the current economic environment.

Broad range of strategies

Traditional fixed income assets, like government and corporate bonds, have long been core holdings for investors. Today, non-traditional fixed income investments are added to enhance core bond holdings (Figure 1).

Figure 1 – Range of fixed income strategies

Traditional fixed income		Non-traditional fixed income
Government	Universe	High yield	Private loans
Provincial	Long	Mortgages	Absolute return
Corporate	Strip bonds	Emerging market credit

Bond yields generally indicate expected longer-term return. Yields have declined from the higher levels in 2024, suggesting there will be continued interest in non-traditional fixed income strategies to complement traditional strategies to enhance returns.

Tariffs, the economy and fixed income

President Trump’s “America First” agenda introduced tariffs to protect US industries and reduce trade deficits, causing global market volatility and sparking concerns about inflation and sustained high interest rates.

There is a wide range of possible outcomes from the tariffs. Weakening growth combined with sticky inflation are ingredients for stagflation. Central banks have little or no flexibility in this scenario. In the pre-COVID world, in anticipation of weakening growth or a weakening labour market, central banks could cut interest rates. However, they do not have the same luxury today, particularly considering sticky inflation.

TJ Sutter, Head of Fixed Income at Connor Clark & Lunn Investment Management, noted the tariff situation is fluid, and the Trump administration has sometimes backpedaled on their resolve. However, the concern is a lot of the potential damage to growth and inflation outlook is already done both in the United States and Canada with business confidence being low, uncertainty high, business investment and capital expenditure intentions stalling and, in some cases, falling off a cliff.

The uncertainty lies in whether the hard economic data will match the soft data of intentions and confidence. These indicators suggest a high probability of a further slowdown. Sutter noted that for his team, the current sentiment is the introduction of the tariffs indicate a recession probability range of 40% to 60% for both Canada and the United States.

Darren Ducharme, CEO of the fixed income specialist manager Baker Gilmore & Associates, noted the sharp rise in geopolitical risk and the associated uncertainty has made navigating markets, including fixed income, much more challenging. Volatility is likely to remain high, and the rise in headline risk will continue to make forecasting expected movements in fixed income markets challenging.

Ducharme emphasized that effective risk management is essential in this volatile environment. While market volatility offers opportunities for active managers, it is vital to appropriately size risk to withstand market turbulence.

Non-traditional fixed income strategies

Incorporating non-traditional fixed income strategies alongside core fixed income holdings can cater to different investor needs and market conditions.

Non-traditional fixed income strategies offer several advantages for portfolio diversification and returns, including:

Higher yield potential: These strategies often provide higher yields than traditional fixed income investments, making them attractive in low interest-rate environments.
Diversification: Investing in assets like mortgages, emerging market credit and absolute return strategies can reduce overall portfolio risk by adding exposure to various economic cycles and credit markets.
Flexibility: Absolute return strategies allow managers to adapt to changing market conditions and seek returns across various asset classes.
Inflation protection: Some non-traditional fixed income investments, like mortgages, offer better protection against inflation compared to traditional bonds.
Enhanced risk-adjusted returns: A multi-strategy solution balances interest rate risk with credit risk, improving long-term risk-adjusted returns.

Stay alert to risk

Fixed income investments are vital for diversified portfolios, offering an alternative stream of returns. Tariffs and rising geopolitical risks have heightened market volatility, making effective risk management more crucial. Traditional fixed income assets, like government and corporate bonds, remain core holdings for investors. Non-traditional fixed income strategies, including mortgages, emerging markets credit, private loans and absolute return strategies, offer valuable opportunities to enhance returns and diversify risk.

In these challenging times, investors should carefully size risk and consider incorporating a broad range of fixed income strategies to weather market turbulence. Leveraging non-traditional fixed income investments can help portfolios achieve better risk-adjusted returns and cater to diverse investor needs. Investors should remain vigilant and adaptable, ensuring their portfolios are well-positioned to thrive in the evolving economic landscape.

President Trump introduced tariffs as part of his “America First” agenda to protect US industries and reduce trade deficits. These tariffs have led to volatility in global stock and currency markets, raising concerns about inflationary pressures and prolonged high interest rates. Additionally, there are questions about the US dollar’s role as the world’s reserve currency, which could affect its long-term stability. A weaker US dollar impacts Canadian investors’ foreign investments, depending on their currency hedging strategies.

This article reviews the longer-term relationship between the US dollar and Canadian dollar and places the recent currency volatility into perspective.

Historical perspective

Figure 1 illustrates the historical exchange rates between the Canadian dollar and the US dollar from 1970 to the end of April 2025.

Figure 1 – Canadian-US exchange rates
Source: Bank of Canada

Rise of the Canadian dollar
The Canadian dollar experienced a long period of decline until the early 2000s when it began to rise, reaching parity with the US dollar in September 2007 for the first time in over 30 years. Several factors contributed to this surge:
- Commodity boom: Canada is rich in natural resources, and the record-high prices for oil and other commodities played a significant role in strengthening the Canadian dollar.
- Strong economy: A robust global economy boosted demand for Canadian exports, further driving up the currency.
- US economic weakness: The United States was facing economic uncertainty, particularly with the subprime mortgage crisis, which weakened the US dollar relative to other currencies.
- Interest rate differentials: The Bank of Canada maintained higher interest rates compared to the US Federal Reserve, making Canadian assets more attractive to investors.

Sharp downturn
In 2008, the Canadian dollar experienced a sharp downturn due to the global financial crisis. Investors moved their money into safe-haven assets like the US dollar, and oil prices plummeted from over USD140 per barrel to below USD40, which negatively impacted the value of the Canadian dollar.The financial crisis triggered a recession in Canada, leading to the Bank of Canada cutting interest rates to stimulate the economy, making Canadian assets less attractive to investors. By early 2009, the Canadian dollar had dropped to below 80 cents USD, a steep decline from its 2007 peak.

Commodity-driven recovery
In 2009, the Canadian dollar rebounded, largely due to the recovery in commodity prices and Canada’s more stable banking system compared to other countries. The Canadian dollar regained much of its lost value and reached parity with the US dollar again in early 2011.

Short-lived recovery
After 2011, the strength of the Canadian dollar was once again affected by commodity prices, with oil prices dropping from over USD100 per barrel to below USD30 by 2016. Concerns over European debt crises and slowing global growth also led investors to favour the US dollar. By 2016, the Canadian dollar had dropped to around 71 cents USD.

Narrow trading range
Since 2016, the Canadian dollar has traded within a relatively narrow range, despite the uncertainty associated with the COVID-19 pandemic, recent high levels of inflation and the volatility caused by tariffs.

Recent perspective

Figure 2 highlights the more recent history of Canadian-US exchange rates from 2020 to the end of April 2025. The introduction of tariffs initially caused the Canadian dollar to hit a low of around 69 cents USD, but it subsequently rebounded and finished April at a little over 72 cents.

Figure 2 – Canadian-US exchange rates

Source: Bank of Canada

To date, the volatility is much less compared to past periods when the Canadian dollar reached parity with the US dollar. For the Canadian dollar to reach parity again, several things would need to happen:

Stronger Canadian economic growth compared to the United States.
Higher interest rates in Canada to attract investment.
Weaker US dollar due to inflation or economic downturns.
Increased demand for Canadian exports, especially oil and natural resources.

The current economic environment does not suggest a rapid rise in the Canadian dollar relative to the US dollar. For example, oil prices are significantly below previous peak levels, and the bigger concern today for Canada is a prolonged recession.

Conclusion

The Canadian dollar has experienced cycles of decline and recovery, influenced by commodity prices, economic conditions and interest rate differentials. Recent volatility has been impacted by President Trump’s tariffs but is much less significant compared to previous events. The current economic environment does not suggest a rapid rise in the Canadian dollar. Investors should continue to monitor the situation.

Currency intervention across Asia in recent weeks may be yet another signal that we are entering a new investment order. We have written to clients previously that a secular peak in the USD likely occurred at the end of 2022.

Looking back to previous peaks in the 1970s and 1980s under Nixon and Reagan respectively, the dollar provided a powerful signal to investors that the US economy was experiencing major distortions that would force policy intervention.

President Trump’s Liberation Day tariff shock is part of a broader play to reinvigorate the competitiveness of American manufacturing. Another key pillar of the strategy is the desire for a weaker dollar. We are now starting to see this play out in Asian currency markets.

The most dramatic moves were in the Taiwan dollar, which surged by 9% over two trading days, reaching three-year highs and logging its sharpest daily gains since at least 1981.

East Asia currencies vs US dollar
31 December 2024 = 100
Source: NS Partners and LSEG (May 2025)

Currency tremors may signal the start of a broader shift in global capital that could have big implications for which markets out- or underperform going forward. As the Financial Times reported in “The Coming Asian FX ‘avalanche’” (7th of May 2025) quoting Eurizon’s Stephen Jen:

“We have long warned about the ‘Avalanche’ risk for the dollar. There could be USD2.5 trillion worth of ‘snow’ in China and more from the likes of Taiwan, Malaysia and Korea, rising at a pace of USD500 billion a year – we conservatively guesstimate. Only a modest proportion of the very large trade surpluses these countries have earned have been repatriated back home, with the bulk of the export earnings being hoarded by exporters in USD deposits.

“Like in actual avalanches, ex-ante, many might dismiss the warnings, but ex-post, all would admit that it was an obvious risk. We are still waiting for more triggers, but we see the sharp sell-off in USDTWD this week from this Avalanche perspective. We predict there will likely be other sudden lurches lower in USDAsia in the coming quarters. Corrections in USDAsia could pacify the US, as Asia accounts for more than half of all US trade deficit, making this a fundamentally benign development, except for those caught long dollars.

“The overhang of liquid dollar holdings is just too large if the dollar weakens, the Fed cuts interest rates, and China stages a cyclical rebound. In other words, both the push and pull factors that kept the export earnings in dollars outside the home countries in the past years will potentially flip signs in the coming quarters. At the same time, many of those holding long-dollar exposures know very well that the dollar is over-valued.”

Emerging markets love a falling dollar, which is an environment we’ve not seen in over 13 years.

Source: LSEG Datastream

Historically, this has seen EM outperform DM, while the winners and losers within the asset class also rotate. For instance, while the strong dollar environment typically favoured EM exporters, a weak dollar would be a shot in the arm for domestic consumers.

Other markets which could surge are those which the United States permits to manage their currencies against a falling dollar by easing monetary policy. There are a number of other smaller EM economies with managed exchange rates which could enjoy surging liquidity that feeds bull markets in financial assets.

The cleanest example of this currency-liquidity transmission is the Hong Kong dollar peg. When the USD falls, the Hong Kong Monetary Authority intervenes to maintain the HKD peg by buying USD and selling HKD, increasing HKD supply. This surge in liquidity lowers interest rates, stimulates economic activity and can lead to higher asset prices (and inflationary pressures).

Our liquidity analysis should be a powerful tool for identifying the risks of both booms and busts if this trend continues.

It’s all about pricing power for the export winners

While exporter stock prices may pop in the coming months on better tariff news, currency dynamics could be important drivers of future outperformance. Let’s use Taiwan Semiconductor Manufacturing Company (TSMC) as an example at the stock level. The company has previously given clear guidance that every 1% of appreciation in the TWD against the USD is a 0.4 ppt hit to OPM. We roughly model this impact out below to illustrate the currency risk to earnings:

EPS	Q1 25a	Q2 25e	Q3 25e	Q4 25e	2025	Implied PE	Implied share price with 17x	Fr current share px
Consensus	13.9	14.8	15.7	15.5	60.0	15.4	1019	11%
FX Impact (10%+)	13.9	13.7	12.7	12.1	52.4	17.5	891	-3%
FX Impact (15%+)	13.9	13.1	12.1	11.5	50.6	18.2	861	-6%
FX Impact (20%+)	13.9	12.5	11.5	10.9	48.8	18.8	830	-10%

If we assumed a further appreciation of TWD/USD to 25 – a 20% appreciation from where TSMC recently guided (when TWD/USD was 33) – the hit to TSMC’s EPS is around 23%.

If we apply a mid-cycle PE (17x) to the company and factor in the earnings hit from the currency shift, that would take us to a stock price of TWD830 from the TWD950 at the start of May.

Adding to the risk is the unpredictability of tariffs negotiations between the United States and Taiwan. Tariffs above 20% on Taiwan semiconductor exports could be a meaningful hit to earnings. Perhaps authorities in Taiwan are allowing the TWD to appreciate as part of a pitch to avoid tariffs.

Mitigating the risks is TSMC’s immense pricing power. We believe robust demand will persist for the leading-edge chips enabling AI where it has a monopoly status. This positions TSMC to pass through a significant portion of price increases to its customers.

However, players in the more commoditised segments of the semiconductor industry which lack the moats and pricing power will be more vulnerable to hits from tariffs and currencies.

UK monetary trends have been arguing for faster MPC easing. Labour market news is now reinforcing the message.

Employment developments appear notably weaker in the UK than in other major economies. The PAYE payrolled employees series fell by 0.09%, 0.15% and a provisional 0.11% in February, March and April respectively. These declines are the equivalent of falls in US non-farm payrolls of 140k, 240k and 170k.

US payrolls, of course, have risen respectably year-to-date, while Eurozone employment grew by 0.3% in Q1.

The February-April UK payrolls contraction followed a pick-up in the rate of decline of the official single-month vacancies series (seasonally adjusted here), which has fallen to its lowest level since 2016 – see chart 1.

Chart 1

Indeed job postings numbers closely track the official vacancies series and have declined further so far in May – chart 2. The Indeed numbers have fallen by more in the UK than elsewhere, to a lower level relative to the pre-pandemic (February 2020) starting point – chart 3.

Chart 2

Chart 3

UK underperformance may be partly attributable to government-imposed rises in labour costs, in the form of the increases in employer national insurance and the minimum wage, and prospectively via the Employment Rights Bill.

Pessimism here about employment prospects, however, also reflected weak corporate money trends. The six-month rate of change of real M1 holdings of non-financial corporations has remained negative, in contrast to a rise into solid positive territory in the Eurozone – chart 4.

Chart 4

Relative money weakness suggested that UK firms were under greater financial pressure to cut costs than their Eurozone counterparts.

A hopeful sign is that UK six-month corporate real money momentum has recovered recently, narrowing the gap with the Eurozone. A key issue is whether this revival is sustained as the NI and minimum wage hikes take effect.

UK employment weakness appears at odds with Q1 GDP “strength”. The UK quarterly numbers, however, have been volatile and year-on-year growth of 1.3% in Q1 is little different from the Eurozone (1.2%).

Front-running of US tariffs temporarily boosted GDP in the rest of the world last quarter. US real imports rose by 10.8%, equivalent to 1.4% of US GDP, between Q4 and Q1. GDP in the rest of the world is 2.7 times the US level measured at current market prices and 5.8 times based on purchasing power parity. Depending on which divisor is used, the US imports increase implies a 0.25-0.5% lift to GDP elsewhere.