The Canadian dollar hit its lowest point since May 2020 following a threat from Donald Trump to levy tariffs on Canadian goods entering the United States upon his inauguration in January, fueling concerns and causing fluctuations in the currency market.
- Impact of Tariffs on Canadian Dollar:
- The looming threat of tariffs posed by Trump led to a decline in the value of the Canadian dollar against the U.S. dollar, exacerbating its downward trend since September.
- In late-morning trading, the loonie dropped to 71.07 cents US, slipping below 71 cents US earlier in the day.
- Existing Economic Factors Contributing to Currency Weakness:
- BMO Capital Markets’ senior economist, Robert Kavcic, highlighted that the additional burden of potential tariffs adds pressure to the Canadian dollar, already reeling from domestic economic challenges.
- Factors such as a softening economy and recent interest rate reductions by the Bank of Canada were already impacting the Canadian dollar negatively, making it more vulnerable to external threats like tariffs.
- Trump’s Tariff Announcement:
- Trump’s announcement on Truth Social indicated a 25 per cent tariff imposition on all products entering the U.S. from Canada and Mexico.
- The president-elect emphasized that the tariff would persist until both nations addressed illicit drug activities, particularly concerning fentanyl, and unauthorized border crossings.
As the Canadian dollar faces volatility due to multiple economic factors, the threat of tariffs proposed by Trump raises further uncertainty about its future trajectory. Investors and policymakers must closely monitor developments in the international trade landscape to gauge the impact on currency valuations and economic stability. Economic resilience and proactive measures are essential to safeguard against external pressures, ensuring a stable and competitive currency standing in the global market.
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