Don’t look now, but after a rough start to the year and hitting a multi-decade low, the Canadian dollar seems to be on an upswing. If things stay on track (and there are no surprises from President Trump), the loonie is set to end the week up by more than 1.5%.
Here’s What’s Going On
Firstly, the Canadian jobs report came in better than expected. Canada added a solid 76,000 jobs in January, blowing past the expected 25,000. In contrast, while the U.S. created 143,000 jobs, it fell short of the 169,000 that was anticipated. This could be a catalyst for the Bank of Canada to rethink cutting rates, while also giving the Fed reason to consider a rate cut of its own.
While one strong data point doesn’t create a trend, market watchers are speculating that this could be the beginning of a shrinking interest rate differential between the BoC and the Fed, which would support the Canadian dollar. Capital and money tend to flow into economies and currencies offering the highest returns, and if the BoC holds off on rate cuts while the Fed starts easing, it could further boost demand for the loonie.
Secondly, the threat of U.S. tariffs seems to be getting delayed once again. More and more analysts are pointing to the April 1 deadline as a more realistic target for tariffs. On January 20, 2025, President Trump issued the ‘America First Trade Policy’ memorandum, instructing federal agencies to conduct a comprehensive review of U.S. trade policies. The findings and recommendations from these reviews are due by April 1, 2025, meaning any potential new tariffs or trade measures will likely be considered after these reports are submitted. Reports also indicate that the 30-day reprieve will now extend into early April, the date when the President is expected to receive reports on which countries have the largest trade deficits with the U.S.
Has the Canadian Dollar Bottomed Out?
Could the Canadian dollar be finding its second wind? It’s tough to say at the moment. Realistically, as long as the threat of tariffs remains, the loonie will struggle to gain much traction. However, for now, it may have found a more stable trading range, at least in the short term.
The Canadian dollar is currently trading at 1.42917 CAD against the US Dollar.
