The Canadian Dollar is off to a volatile start in the New Year. On Monday, after Prime Minister Justin Trudeau announced his pending resignation, the Loonie gained some momentum, climbing nearly 1% in early trading against the U.S. Dollar. Markets viewed Trudeau’s exit as an opportunity to revitalize the Canadian economy under new leadership.
Adding to this brief rally, news surfaced that the Trump team was working behind the scenes on a more targeted package of tariffs, temporarily supporting the Canadian Dollar by seemingly averting the worst-case scenario of general tariffs on all goods.
However, the Loonie’s momentum didn’t last long. On Tuesday, during President-Elect Trump’s press conference at Mar-a-Lago, he doubled down on his plans for sweeping tariffs on Canada and revived his controversial idea of Canada becoming the “51st state” through what he described as “economic force.”
While it’s clear that Canada joining the U.S. isn’t happening, and it’s most likely that Trump’s tariffs will focus on specific Canadian goods and sectors, this uncertainty has only added to the Canadian Dollar’s growing vulnerability. The once-cordial political relationship between Canada and the U.S. appears to be fading, with economic tensions now taking center stage.
Meanwhile, among economists and forex speculators, there’s growing chatter that a weaker Loonie could help cushion the Canadian economy against the costs of tariffs. But does that mean the Canadian Dollar is on a steady decline? For now, all signs seem to point in that direction.
The Canadian dollar is currently trading at 1.4395 CAD against the US Dollar.
