The Canadian dollar continued to rise on Friday, trading at 70.62 cents US after closing above 70 cents US on Thursday for the first time since December. This marks a 2.7 percent increase since January 31, when it dropped below 69 cents US, just before Donald Trump announced across-the-board tariffs on Canadian and Mexican exports. The US dollar is losing its “tariff premium” as uncertainty around Trump’s trade policies persists.
With the proposed tariffs on hold and few details available, analysts suggest that the US dollar’s earlier strength is fading. Noah Buffam, a currency analyst at CIBC Capital Markets, noted, “The loonie was slightly stronger against the [US dollar] overnight as the tariff premium continues to come out of the USD.” He expects this trend to continue, with the “slow unwind of the tariff premium.”
Corpay’s chief currency strategist, Karl Schamotta, highlighted broader market reactions. “Benchmark 10-year Treasury yields are down, equity markets are up, and measures of financial market volatility are well off their highs as ‘tariff exhaustion’ kicks in,” he wrote in a note on Friday.
As the US dollar declines, other major currencies have strengthened. The British pound reached a one-year high, the euro gained, and the Mexican peso extended its rally ahead of the North American market open. Economist David Rosenberg of Rosenberg Research & Associates Inc.
pointed to growing doubts over Trump’s trade policies. “Investors seem to be smelling a rat on this tariff file,” he wrote.
Canadian dollar gains amid US uncertainty
“First, a reprieve for Canada and Mexico. Second, no action yesterday on these so-called reciprocal tariffs.”
Howard Lutnick stated on Thursday that a full review of trade barriers, currency manipulation, value-added taxes, subsidies, and regulations will be completed by April 1. Meanwhile, Buffam noted that the White House “was not ruling out a flat global tariff,” suggesting that reciprocal levies could replace a broader global tariff strategy.
Schamotta believes concerns over a global trade war are diminishing. “Rightly or wrongly, fears of a global trade war are easing,” he said. With the Canadian dollar now above 70 cents US, investors are watching for further gains.
Before Trump’s initial tariff announcement on November 25, the loonie was trading around 71 cents US. CIBC expects the Canadian dollar to rise further, setting a short-term target of 71.7 cents US. “The [US dollar] looks set to remain on the defensive as the tariff-related risk premium slowly erodes,” Buffam stated.
Schamotta sees potential for additional gains but warns of ongoing risks. Breaking through the 71 cent US level is “absolutely possible,” he said, though he noted that a lingering “tariff discount” continues to weigh on the loonie. “We know that Trump isn’t going to change his stance, so any unbridled sense of optimism isn’t likely to last,” Schamotta added.
