Investors pull back amid escalating US-Canada trade dispute
The Canadian dollar weakened against the US dollar Thursday, weighed down by falling oil prices and renewed trade tensions between Canada, the US, and other trading partners. The currency drop signals growing unease in the financial markets, with investors wary of how further tariffs might impact Canada's economy.
The loonie fell in trading to three basis points lower at 3.042% on 10-year bonds, after earlier briefly reaching its highest yield since February 24 at 3.136%, and lost 0.4% of its value against the greenback.
The latest round of market nervousness followed US president Donald Trump's recent imposition of increased tariffs on steel and aluminum imports, effective Wednesday. Further retaliatory tariffs by Canada are set to begin April 2. Trump also threatened additional tariffs targeting imports from the European Union, further spooking investors and unsettling global markets.
According to Darcy Briggs, a portfolio manager at Franklin Templeton Canada, markets are in a "consolidation until we figure out what is actually going to go on and stick," adding that volatility could remain elevated until the reciprocal tariffs are implemented.
The Bank of Canada cut its benchmark interest rate by 25 basis points on Wednesday, dropping it to 2.75%, but warned it would "proceed carefully with any further changes," emphasizing caution due to conflicting pressures on inflation and economic growth.
Read next: Economists say more cuts could be in store after BoC slashes rate
Clay Jarvis, mortgage expert at NerdWallet Canada, explained how prolonged tariff disputes might affect the mortgage market.
“A trade war with the US won’t have an immediate impact on home prices but it could have a chilling effect on demand,” Jarvis said. “If the high cost of living already has some buyers doubting they can afford a mortgage, another uptick in their daily expenses will definitely knock them to the sidelines.
“Depending on how long this tariff spat lasts, we could see serious deterioration in the labour market, too. If someone is worried their job may not be there in a few weeks, they’re not going to be buying a home.”
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