FX.co ★ Loonie Depreciates Amid Trade War Woes

The Canadian dollar weakened, nearing 1.44 against the USD, reversing from a recent peak of 1.426 observed on March 26th. This decline results from escalating trade tensions and the potential implementation of U.S. tariffs that threaten vital Canadian export sectors such as auto parts, raw materials, and lumber. The assertive trade position of the U.S. jeopardizes Canada’s trade surplus by potentially diluting the advantages of the 2018 trade agreement, which included a 60-day postponement and annual duty-free quotas for auto imports. This scenario has heightened investor apprehensions that such tariffs could trigger broader protectionist responses. Adding to the uncertainty are potential retaliatory measures by the Canadian government, weak GDP performance, and a shrinking yield differential attributed to expectations of a more accommodative policy from the Bank of Canada. Collectively, these factors have prompted market participants to reassess risk levels amid a climate where the trade conflict shows no signs of easing.