Canadian dollar rebounds as investors question impact of US tariffs

The Canadian dollar made a slight recovery against its American counterpart on Tuesday after falling for a week.

The currency was up 0.2 percent at 1.4450 per US dollar, or 69.20 US cents, after some volatile trading that saw it move between 1.4407 and 1.4520, as per Reuters. It hit a one-month low of 1.4541 on Monday on concerns about tariffs and a potential trade war between US and Canada.

US tariffs lead to trade conflict

The recent economic strain comes after the implementation of aggressive trade policies by American President Donald Trump. His administration has put a 25 percent tax on imports from Mexico and Canada and raised tariffs on Chinese goods to 20 percent. The new trade policies that have been put in place have raised global market uncertainty because these are the three biggest trading partners of the United States.


After American tariffs were announced, Canadian Prime Minister Justin Trudeau stated that his country will be imposing tariffs on the US. It will levy a 25 percent tariff on C$30 billion (US$20.7 billion) worth of US imports and may extend the levies to goods worth C$125 billion in the event that Washington’s tariffs stay in place after 21 days.

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Some market analysts have pointed out that some of the high tariffs may not be sustainable in the long run. "The Canadian dollar has already incorporated some tariff risk, but it did not foresee a 25% tariff," said Shaun Osborne, the chief currency strategist at Scotiabank, as quoted by Reuters. "It looks like the market is skeptical that these tariffs will last very long."

Market uncertainty affects currency and commodities

The foreign exchange market has been negatively affected by the level of uncertainty in the US trade policy sector. The US dollar slipped to a three-month low against a basket of major currencies on worries about the economy and the potential negative effects of the tariffs.

In addition, the prices of crude oil, which are very sensitive to the Canadian dollar, decreased by 0.8 percent at $67.80 per barrel. The decline occurred after it was reported that OPEC and its allies intend to increase output from April, which could have put more pressure on oil prices down.

Canadian bond yields show potential of rate cut

Canadian bond yields were up and down in a slightly flatter curve as investors waited for further monetary policy easing. The market is already factoring in an 80 percent chance that the Bank of Canada will lower its interest rates on March 12. Its two-year government bond yield was down by two basis points to 2.457 per cent, which was the lowest since April 2022, suggesting that the economy is likely to face further adjustments due to the trade and financial pressures that are still present.

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FAQs:

How have U.S. tariffs impacted the Canadian dollar?
The Canadian dollar initially declined due to the imposition of 25 percent tariffs but rebounded as investors doubted the long-term sustainability of the levies.

What measures has Canada taken in response to U.S. tariffs?
Canada announced a 25 percent tariff on C$30 billion worth of U.S. imports and warned of further action if tariffs remain in place for 21 days.