The Canadian Dollar (CAD) declined by about 0.2% against the US Dollar (USD) amid ongoing bearish trends, marking its seventh consecutive session of losses. This downturn follows threats from President Trump regarding a 25% tariff on Canadian goods.
CAD is projected to approach multi-year lows as the USD/CAD pair returns to the 1.4500 range. Reports also indicate a forthcoming production limit increase from OPEC, which may further inhibit the Loonie’s performance. Canadian officials are prepared to retaliate with tariffs if the proposed measures go forward.
Canadian Pmi Disappoints
March’s Canadian Purchasing Managers Index (PMI) Manufacturing figures fell sharply to 47.8, missing forecasts and signalling potential recession fears. The CAD’s decline has pushed USD/CAD higher, with the pair trending above the 50-day Exponential Moving Average near 1.4300, although indicators suggest possible exhaustion in the upward trend.
Tariffs function as customs duties meant to bolster local markets by increasing the cost of imported goods. While they can generate government revenue, their long-term impact on prices and potential trade conflicts is debated among economists.
As the 2024 presidential election approaches, Trump aims to utilise tariffs to benefit the US economy, focussing on key trading partners, Mexico, China, and Canada, which together made up 42% of total US imports in 2024. He intends to use tariff proceeds to lower personal income taxes.
The Canadian dollar continues its downward march, with the USD/CAD pair climbing towards levels last seen years ago. After already losing ground for seven straight sessions, downward pressure remains strong. This decline isn’t happening in isolation. Reports of OPEC’s decision to increase production may weaken oil prices, which often sets the tone for Canada’s currency due to the country’s heavy reliance on energy exports. Meanwhile, the Bank of Canada’s task of stabilising inflation could grow more complicated if external pressures send consumer prices higher.
Trump’s tariff threat is rattling markets, particularly because Canada exports a major share of its goods south of the border. A 25% duty would sharply restrain business activity, as firms adjust pricing structures to offset the costs. The government in Ottawa has signalled a firm stance, with officials ready to hit back in kind. While retaliatory tariffs can help domestic producers in theory, they also risk inflating prices for consumers and disrupting supply chains. Markets will be watching closely to see whether diplomatic talks yield a resolution or if traders must brace for another round of trade disputes.
The disappointing March PMI figures only add to the bleak outlook. A reading below 50 typically indicates contraction, and at 47.8, the numbers paint a picture of manufacturers struggling with softer demand. Fears of an economic downturn are creeping in, which could influence future monetary policy decisions. The USD/CAD pair has pushed past the 50-day Exponential Moving Average, hovering around 1.4300, but technical signals suggest waning momentum in the current trend, hinting at possible exhaustion. Traders positioned for an extended climb should monitor whether buying pressure persists or if signs of reversal present an opportunity to reposition.
Tariff Debate Intensifies
The broader debate around tariffs is far from settled. Supporters argue that they encourage local production by making imports less competitive. Detractors point to the knock-on effects, with businesses often passing higher costs onto consumers. This time, Trump plans to use tariff revenues not just as leverage in trade negotiations but also as a way to lower personal income taxes. His economic approach will remain a focal point as the US presidential election draws closer, particularly among investors weighing the implications for global trade.
For now, traders should remain alert. Markets are bracing for further developments, and the next moves from policymakers could dictate short-term price action. Monitoring technical indicators alongside fundamental shifts will be key in the coming weeks.
