January 20, 2025 at 04:30PM
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.
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).
This article was written by Adam Button at www.forexlive.com.
