Will US–Canada Trade War Weaken the Loonie? | Presented by CME Group

Summary

The video examines how renewed US-Canada tariffs are affecting the Canadian dollar. It notes the direct tariff shock appears partly priced in, with USD/CAD still inside its 2025 range. The main unpriced risk is a Canadian growth hit that could let the Bank of Canada cut more than the Fed, widening rate differentials and weakening the loonie.

• New 50% US tariffs and reciprocal Canadian measures reversed part of the Canadian dollar's summer rally.
• The Canadian dollar gained 3.5% from late June through August 21, then lost over 1% after the tariffs took effect.
• USD/CAD remains in the middle of its April 2025 trading range, suggesting the flare-up is not huge yet.
• Canada's matching tariff structure may cap near-term downside and imply the direct tariff shock is partly priced in.
• The unpriced risk is economic damage to Canadian steel, aluminum, and auto exporters.
• If the Bank of Canada gets more room to cut than the Fed, widening rate differentials could weaken the loonie.
• The video advises watching the rate differential rather than the tariff rhetoric.