The Canadian dollar has been a big mover today, trading in a 220 pip range. The pair rose to the highest of the year earlier at 1.4485 on fears that Trump would enact Day 1 tariffs on Canada of up to 25%, sparking retaliation and a trade war.
However a WSJ report highlighted that Trump will only sign a memo asking to investigate trade practices from Canada, Mexico and China. That’s the best-case scenario so far, though with Trump everything is subject to change.
In light of the report, USD/CAD fell sharply and hit 1.4262 at the low. That’s back to December 17 levels, though the pair has since bounced to 1.4327.
USD/CAD daily
Part of the reason for the bounce is uncertainty about what’s really coming. Canada and others won’t avoid a trade dispute for four years so it’s tough to embrace it or any other currencies that are in the crosshairs. That said, it’s a great start.
Also restraining the loonie here is a $1.42 drop in WTI crude to $76.46. Oil has been building in a tariff premium as buyers stuff pipelines and tankers trying to get ahead of potential tariffs. There was also some threat of Canada and/or Mexico cutting off supplies in response to tariffs.
As for what’s next, we wait for the next Trump headlines but I think it’s a good sign of an interim bottom for the loonie. Trump had months to think about tariffs on Canada and I don’t think he’s going to change his mind tomorrow (though the threats will continue).