At the start of the week, the Canadian dollar seemed to be finding its footing after hitting multi-year lows against the U.S. dollar. Positive domestic indicators, like a fourth consecutive month of rising retail sales in October and inflation ticking up to 2%, suggested that the Bank of Canada’s earlier rate cuts were finally boosting consumer spending. These signs pointed to a strengthening economy and renewed confidence in the loonie.
South of the border, the nomination of Scott Bessent as U.S. Treasury Secretary was seen as a win for the Canadian dollar. Bessent favors targeted tariffs over broad ones and stresses the need to rein in government spending to prevent deficits from spiraling out of control. His strategic approach was expected to bring some much-needed stability, which boded well for the Canadian dollar.
But then, President-elect Donald Trump threw all that out the window. On Monday night, he announced plans to slap a 25% tariff on all imports from Canada and Mexico, effective January 20, 2025. Considering that the U.S. accounts for about 80% of Canadian exports, this move could seriously impact Canada’s economy. In response, both the Canadian dollar and the Mexican peso took a hit, each dropping around 1%.
On January 20th, as one of my many first executive orders, I will sign all necessary documents to charge Mexico and Canada a 25% tariff on ALL products coming into the United States, and its ridiculous open borders.”
– President-elect Donald Trump
While many experts view this as a negotiation tactic, the reality is that it’s already injected more instability into the future of the Canadian dollar.
Looking ahead, the Canadian dollar is expected to face more ups and downs. For those looking to sell U.S. dollars, rates above 1.395 might be favorable. On the flip side, if you’re aiming to buy U.S. dollars, it might be wise to hold off for better rates.
The Canadian dollar is currently trading at 1.4074 CAD against the US Dollar.
