File image of President Donald Trump. Official White House Photo by Shealah Craighead.
An incredibly volatile 24 hours for the Canadian Dollar as tariff speculation swirls.
The Canadian Dollar slumped on news President Donald Trump will impose tariffs of as much as 25% on Mexico and Canada by February 01.
Trump said the tariffs would be a response to the flow of illegal migrants and drugs crossing the borders.
"We’re thinking in terms of 25% on Mexico and Canada because they're allowing vast numbers of people” into the US, Trump said in response to questions from reporters in the Oval Office on Monday night. "I think we’ll do it Feb. 1."
"So, why the delay until February 1?" asks Nigel Green, CEO of deVere Group, a private wealth management specialist. "It's a clever bluff."
"Trump’s pause isn’t hesitation; it's strategy," he explains. "By dangling the threat of tariffs, he’s piling pressure on Mexico and Canada, and sending a warning shot to others like China and the EU. It's a high-stakes gamble to force better trade terms."
Earlier on inauguration day media reported that Trump would not rush tariffs, instead intending to focus on domestic issues in a day-one blitz of policy announcements. The Canadian Dollar rallied in response, signalling traders saw a softened stance.
However, the relief was short-lived.
"Canada’s a very bad abuser," Trump said, referencing fentanyl and migrants crossing the northern border.
The U.S. Dollar to Canadian Dollar exchange rate fell by a per cent on Monday and has since recovered 0.88% to go to 1.4434 on Tuesday.
The Pound to Canadian Dollar rallied as much as a per cent in early Tuesday trade before paring the advance to +0.35% and landing at 1.7705 at the time of writing.
Trump first threatened to target Canada and Mexico with tariffs on November 26, citing uncontrolled migrant and drug flows into the U.S.
It shows Trump will use tariffs as a tactical tool to coerce countries into aligning with his wishes which will make for a volatile FX landscape in the coming months.
Expect the issue of tariffs to extend beyond North America. Trump said late on Monday that he was still considering a universal tariff on all foreign imports to the U.S., but said he was "not ready for that yet."
The universal tariff is considered the most pro-USD outcome of his potential tariff policy, as it has significant inflationary implications for the U.S. while penalising major exporters to the U.S., such as China and the Eurozone.
"You'd put a universal tariff on anybody doing business in the United States because they're coming in and they're stealing our wealth," he said, adding that implementation could be "rapid."
Trump also signed an executive order "addressing unfair and unbalanced trade". It will investigate the feasibility of "implementing an External Revenue Service (ERS) to collect tariffs, duties and other foreign trade-related revenues."