Canadian Dollar Strengthens as Tariff Risks Pressure the US Dollar

Trade Policy Uncertainty Weighs on the Greenback
The Canadian Dollar gained momentum at the start of the week as renewed tariff threats from the United States undermined confidence in the US Dollar. Markets reacted cautiously to President Donald Trump’s latest escalation in trade rhetoric, which revived concerns over a broader and more prolonged trade conflict with key European partners.


Europe Pushes Back Against US Tariff Threats

Washington’s proposal to impose new tariffs on European goods, linked to political demands surrounding Greenland, was swiftly rejected by European leaders. The prospect of reciprocal tariffs has raised fears of another cycle of retaliatory trade measures, reinforcing downside pressure on the US Dollar and supporting alternative currencies, including the Canadian Dollar.


Canadian Economic Outlook Remains Cautious

Despite the currency’s recent strength, Canada’s domestic fundamentals remain mixed. The Bank of Canada’s latest Business Outlook Survey shows that business sentiment is still subdued, reflecting weak sales growth and lingering uncertainty tied to global trade conditions. However, concerns about a deep or widespread recession have eased compared to last year.


Inflation Data Sends Mixed Signals

Canadian inflation figures offered a nuanced picture. Annual consumer price inflation remains moderately elevated, while monthly data showed a contraction, suggesting that price pressures are uneven. This balance allows policymakers to remain cautious without signaling urgent shifts in monetary policy.


Broader FX Markets Favor Stability Over Risk

The Canadian Dollar’s advance reflects broader dynamics in global currency markets, where investors are reducing exposure to the US Dollar amid policy unpredictability. Until trade tensions show signs of de-escalation, currencies backed by relatively stable fundamentals and predictable policy frameworks are likely to remain supported.


Outlook: Trade Headlines Still in Control

Looking ahead, the Canadian Dollar’s performance will remain closely tied to developments in US trade policy and global risk sentiment. With tariffs once again dominating headlines, fundamentals across currencies are being shaped less by data surprises and more by political decisions and their potential economic fallout.