
Over the weekend, President Trump followed through on his tariff threats, imposing new trade restrictions on the U.S.’s two largest trading partners—Canada and Mexico.
The reaction was immediate. The Canadian dollar (CAD) plunged to 1.4792 per U.S. dollar, its lowest level since 2003. However, the Loonie managed to claw back some of those losses, rebounding to the 1.4650 range by Monday morning.
Emergency Tariffs: The Breakdown
Trump imposed the tariffs using emergency legislation, a move that is likely to face legal challenges. As it stands:
- A 25% tariff on all U.S. imports from Canada is set to take effect on February 4th.
- A 10% tariff will apply specifically to oil imports from Canada.
Canada Fires Back
In response, Canada is hitting back with its own tariffs:
- A 25% tariff on C$30 billion worth of U.S. goods took effect Tuesday.
- An additional C$125 billion in tariffs will roll out in 21 days, giving Canadian businesses time to adjust.
Could USD/CAD Hit 1.50? Absolutely.
With these trade tensions escalating, a move toward 1.50 USD/CAD is well within reach.
The U.S. dollar is strengthening across the board, with currencies like the Euro, Australian Dollar, Mexican Peso, and Chinese Yuan all weakening against it.
Meanwhile, “safe haven” currencies like the Japanese Yen and Swiss Franc are holding steady or even gaining. These currencies, along with the U.S. dollar, tend to perform well in times of market uncertainty.
What’s Next for the Canadian Dollar?
The tariffs are widely expected to push up U.S. inflation, keeping U.S. interest rates higher for longer, which in turn supports the U.S. dollar.
At the same time, Canada is at risk of slipping into a recession. If that happens, the Bank of Canada may be forced to cut interest rates even more aggressively, further widening the gap in rates between Canada and the U.S.—a dynamic that already favors the U.S. dollar.
To make matters worse, Trump has also threatened tariffs on the European Union. If global trade slows further, the Canadian economy—and the Loonie—could take another hit.
The Canadian dollar is currently trading at 1.4679 CAD against the US Dollar.