The Canadian dollar hit a one-month low against the U.S. dollar on Tuesday. This comes after investors raised bets on more interest rate cuts from the Bank of Canada. The cuts are expected after the start of a trade war that could hurt Canada’s economy.
Prime Minister Justin Trudeau told U.S. President Donald Trump that the new 25% tariffs on Canadian goods were “a very dumb thing to do.” Trudeau said Ottawa would strike back right away. Trump then threatened to raise tariffs on Canadian goods even more. He hinted at a U.S. plan to put “reciprocal tariffs” on global trading partners starting April 2.
“This is only the first shot of the tariffs. There is more pressure coming,” said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC. “This is going to force the Bank of Canada to cut rates next week.”
Investors see a roughly 90% chance that the Bank of Canada will lower its key rate by another 25 basis points on March 12.
This would follow a cut to 3% in January to help the economy. Oil, a major Canadian export, was trading 0.2% lower at $68.25 a barrel. This comes amid reports that OPEC will go ahead with a planned output increase in April.
Canadian dollar drops amid tariffs
Canadian bond yields were mixed across a steeper curve. The 2-year yield fell 4.1 basis points to 2.436%, its lowest level since April 2022.
American consumers and businesses are preparing for higher prices due to the tariffs President Donald Trump put on the nation’s top three trading partners. With only a small exception for some Canadian energy products, everything the US imports from Mexico, Canada, and China faces tariffs of at least 20% for China and 25% for Mexico and Canada. The effects of these tariffs might not be felt right away, but the import taxes could eventually make a wide range of products more expensive.
Over 40% of the goods America imported last year came from these three countries. How much prices go up will depend on how businesses handle the higher costs, whether they take them on, change supply chains, or pass them on to consumers. US Commerce Secretary Howard Lutnick has said President Donald Trump will “probably” announce a deal to lower tariffs on Canada and Mexico on Wednesday.
“Both the Canadians and Mexicans were on the phone with me all day today trying to show that they’ll do better on reducing the flow of the synthetic opioid fentanyl into the US,” Lutnick said in an interview with Fox Business Network. But Canada’s Minister of Foreign Affairs Mélanie Joly told another news outlet that her office had not been contacted about the plan. Canada and Mexico announced their own import taxes on the US after Washington’s 25% tariffs on its two neighbors started on Tuesday.
Lutnick made it clear that he expected the US tariffs to be lowered rather than paused. “I think [Trump’s] going to figure out, ‘you do more, and I’ll meet you in the middle some way.’ And we’re probably going to be announcing that tomorrow.”
