- USD/CAD jumps to 1.4550 as the US Dollar hits a weekly high amid Trump's tariff threats.
- The Canadian Dollar weakens as Donald Trump prepares to impose 25% tariffs on Canada starting February 1.
- The Federal Reserve has signaled a pause in monetary policy adjustments, awaiting clearer signs of inflation progress or labor market weakness.
USD/CAD climbs toward 1.4550 in Friday's North American session as investors continue to sell off the Canadian Dollar (CAD) amid concerns over Donald Trump's impending 25% tariffs on Canada, set to take effect on February 1. Given that 75% of Canada's total exports go to the US, these tariffs could significantly weaken the Canadian economy.
On Thursday, Trump reiterated his tariff plans on Canada and Mexico, citing concerns over illegal immigration and fentanyl trafficking into the US. In response, Bank of Canada (BoC) Governor Tiff Macklem warned that a prolonged trade conflict could severely harm Canada's economic activity. His comments followed the BoC's decision to cut interest rates by 25 basis points (bps) to 3%, aimed at mitigating the risks of inflation undershooting its 2% target.
Economists warn that Trump's tariffs could trigger stagflation in Canada, as businesses reduce operations and lay off workers, leading to lower productivity and rising costs, further fueling inflationary pressures - an unwelcome scenario for the BoC.
Meanwhile, the US Dollar (USD) continues to strengthen as Trump's tariff threats boost its safe-haven appeal. The US Dollar Index (DXY), which tracks the Greenback against six major currencies, has hit a fresh weekly high near 108.40.
Market experts believe that Trump's tariffs could also be inflationary for the US, reinforcing the Federal Reserve's (Fed) cautious stance. On Wednesday, Fed Chair Jerome Powell signaled that monetary policy adjustments would remain on hold, stating that the Fed would only consider rate changes once there is "real progress on inflation or signs of labor market weakness."
