FX.co ★ Loonie Depreciates Amid Trade War Woes

The Canadian dollar has declined, approaching 1.44 per USD, down from a recent peak of 1.426 recorded on March 26th. This depreciation is attributed to escalating trade frictions and the imminent threat of U.S. tariffs that adversely impact vital export industries such as auto parts, raw materials, and lumber. The aggressive trade policies initiated by the U.S. jeopardize Canada's trade surplus, potentially diminishing the advantages offered by the 2018 trade agreement, which had provided a 60-day deferral and yearly duty-free allowances for auto imports. This situation has heightened investor anxiety over the possibility of these tariffs triggering more extensive protectionist strategies. Amidst these challenges, there is growing speculation about possible retaliatory measures by the Canadian government. This concern is exacerbated by soft GDP figures and a shrinking yield gap, influenced by the anticipation that the Bank of Canada may adopt a more accommodative monetary policy. Consequently, market participants are adjusting their risk assessments in an uncertain environment where the trade dispute shows little sign of resolution.