Published: March 12th, 2025
The Canadian Dollar (CAD) began to climb last week when US president Donald Trump walked back his blanket tariff on key Canadian exports. Analysts now say the tentative gains seen since are likely in response to falling US stock prices and worries expressed by senior Republicans that White House trade policy was harming America's economic prospects.
Trump pushed back some of his planned tariffs on imports made currently duty-free by the North American trade agreement (USMCA) until April the 2nd. The new deadline provides temporary exemptions to about half of the goods affected by the recently imposed 25 per cent levy.
A note to investors from Deutsche Bank's currency strategy unit said that the USMCA trade agreement, renegotiated during President Trump's first term as President, “are focused on requirements around rules of origin. Investors are interpreting the partial exemptions as a way to address worries about re-imports from third countries.”
Ottawa said it would also postpone its plans for a new wave of retaliatory tariffs on the 12 billion (CAD) worth of US imports to April 2nd.
The Loonie first rose last week when US Commerce Secretary Howard Lutnick suggested that some exemptions on Canadian imports were being discussed. Despite the upbeat tone, the Canadian Dollar rally ‘has been shallow,’ Deutsche analysts say. At time of writing, about half of CAD's gains against G10 peers Euro and Pound achieved last week had been pared back.
Bearish sentiment will cap CAD's recovery, they add, as forex traders will be wary of Trump making good on his threat when April 2nd arrives.
The 47th President also warned that tariff relief for automakers would soon end, declaring there would be no further extensions in April.
"I told them this is a short-term deal and that's it," the president told CNN. A period of economic uncertainty and disruption for the Canadian economy is likely to continue for the coming weeks.
In January, Deutsche Bank analysts suggested the CAD could find itself testing all-time lows in February if the new Trump administration levied a 25 per cent import tariff on Canadian goods.
The pre-inauguration threat made by Trump via X and his own Truth Social network sent the Loonie hurtling Earthward. Canadian officials have responded angrily, with Prime Minister Justin Trudeau saying that Canada would respond ‘dollar for dollar’ with retaliatory tariffs of its own.
Deutsche analysts wrote that the very real prospect of an escalating US-Canada trade war would be a ‘worst-case scenario’ for Canada's domestic economy and CAD.
‘Should American tariffs go ahead, its natural to assume Ottawa will fight back with tariffs of its own, and in product categories similar to those targeted in the previous 2018 Trump tariff battle. What's different today is that the Canadian government has also mooted the idea of export taxes on commodities. In a trade battle with the US this could give Canada real leverage, despite its much smaller economy.’
If Trump does go ahead with a 25 per cent tariff, Deutsche thinks the impact on Canadian aggregate demand ‘will be significant, probably damaging enough to push Canada into a recession.’
In that scenario the Bank of Canada wold have to respond strongly, forcing central bank policymakers to cut rates more deeply and for longer than previously expected. The result could be a weakened Loonie. Trump seems keen to make good on his threat. When markets opened this week he made anew statement singling out Canada and Mexico out as priority targets for new tariffs. He argues that lax border enforcement by both countries has exacerbated illegal immigration to the US.
Canadian households and businesses will have to tolerate a period of uncertainty, which could create headwinds that dampen economic growth.
Loonie bulls may breathe easier after Canada's expected Spring federal election, as polls have suggested the Liberal government of (former PM) Justin Trudeau will fall to a populist-led conservative party.
Pierre Poilievre, head of Canada's conservative opposition party, has positioned himself in broad alignment with Trump and the MAGA movement south of the border – not least on the issues of cryptocurrencies. Poilievre has branded himself as the pro-crypto candidate for Prime Minister.
‘We need to let ordinary people take back control of their money. To do that in a time of expanding government oversight we need to make crypto fully legal and create conditions that will allow it to thrive,’ Poilievre said in a recent post on X. He pledged to help ordinary Canadians ‘take back control over the money you've earned through your hard work from politicians and bankers.’
He has also said that a vote for him will help make Canada ‘the blockchain capital of North America’. Poiliviere's crypto plans are light on specifics. Just how he would make Canada a "blockchain capital" remains to be seen. For the time being, his objective is likely to tap the surge of interest in crypto amongst grassroots Conservative Party members.
After the ‘Freedom Convoy’ occupation of Ottawa, Canada's capital, by long-haul truckers earlier this year, crypto was seen as a way to get around state surveillance and offer financial support to convoy participants by right wing supporters of the protest.
As Canada's National Post newspaper noted, Poiliviere has a long history of criticising Canada's central bank, blaming it for aggravating inflation and debasing the country's fiat currency (CAD), messages that resonate with libertarians and Bitcoin proponents across the conservative base.
Poiliviere's take on crypto differs sharply from Liberal government policy. The Trudeau government has took aggressive measures to reign-in the crypto industry in the wake of the 2022 Freedom Convoy protest, adding new reporting requirements for crypto transactions worth more than CAD 1,000.
Exactly how Poiliviere's Bitcoin rhetoric will play amongst voters remains to be seen. Many will have only learned about crypto because of news around the protest, so may see it as a partisan issue. That would make Poiliviere's crypto message less impactful, especially given that most Canadians rejected his predecessor's attempts at Trump-style populism.
