USD/CAD has remained volatile over the past two months as US President Trump’s tariffs on Canada and Mexico are set to kick in soon. The tariff announcements have sparked a rebound in USD/CAD, but markets are still confused as to the exact date these tariffs will be implemented.
The currency pair spiked higher last month and almost reached 1.48 but failed to hold gains as last tariff deadlines were postponed. ⁽¹⁾
Both currencies are still facing pressure from economic downturns. The Bank of Canada is still in its rate cycle, while President Trump is demanding the Fed lower interest rates to ease borrowing costs for households and businesses.
Tariffs are Creating Fear…and Confusion
The Canadian Dollar remains under pressure as President Trump repeated his rhetoric on economic sanctions over Canada and Mexico. Tariffs have heightened fears of a recession in Canada.
The Canadian Dollar reached a near two-week low, caused by falling oil prices, which are a critical export for Canada.
Trump stated that the US doesn’t need Canadian oil or lumber, which poses a threat to the historic trade relationship between the two countries. ⁽²⁾
WTI prices declined to around $69.00 at the time of writing, as US economic growth remains a concern while global uncertainties prevail. A potential peace deal between Russia and Ukraine could result in lifting the Russian oil ban, which would boost supply and potentially weigh down prices. ⁽³⁾
However, President Trump recently added confusion to the tariff outlook for Canada and Mexico, suggesting they would take effect on April 2 instead of the previously set March 4 deadline, while also proposing a 25% “reciprocal” tariff on EU cars and goods. ⁽⁴⁾
Bank of Canada Awaits Tariff Confirmation
Bank of Canada Governor Macklem recently acknowledged that tariffs have added to uncertainty. Tariffs could impact the BoC’s plan on interest rates as inflation pressures continues to rise. The Bank of Canada will meet on March 12th as markets await more tariff insights during its press conference.
Tariff developments may prove to be a key driver for the currency pair this week as the deadline approaches. Traders and investors will monitor statements from both US and Canadian officials.
US Dollar Uncertainty
The US Dollar has been facing downside risks due to weak short-term Treasury yields, weak economic data, and potential new tariffs from the US that have created economic uncertainty.
Weak consumer and business sentiment are weighing on the Dollar as traders and investors are raising their expectations of a Fed rate cut during their next meeting on March 19th. President Trump has demanded lower interest rates from the Fed to ease borrowing costs and to stimulate the economy as it slows. ⁽⁵⁾
The US Dollar has rebounded from 11-week lows as traders assess the latest developments on tariffs. Escalating trade fears may drive inflation higher once again after long efforts from the Fed to bring it down. ⁽⁶⁾
The previous CPI report showed that inflation rebounded to 3% YoY, with analysts warning of increased inflation risks once full-blown tariffs are set in motion. ⁽⁷⁾
What’s Ahead?
Beyond tariff headlines, some important events and economic data are coming out over the next few days that could trigger volatility for USD/CAD.
On Thursday, we have US GDP (QoQ), showing a forecast of 2.3% growth. If the GDP data disappoints, economic concerns could show signs of weakness in the economy, leading to higher rate-cut expectations. ⁽⁸⁾
On Friday, the Fed’s favorite inflation gauge, the core PCE Index, will be monitored by traders and investors, measuring consumer income and spending data. Canada’s GDP (QoQ) report will be released also alongside the PCE report, forecasted at 1.9%. ⁽⁹⁾
These events are expected to trigger volatility in the USD/CAD pair, providing fresh insights into how both central banks will determine their next moves on interest rates.
