Scotiabank strategists Shaun Osborne and Eric Theoret note the Canadian Dollar (CAD) has recovered overnight losses versus the US Dollar (USD) after news that President Trump may impose new tariffs on Canadian exports. They see these measures as an additional headwind for CAD, with fair value for USD/CAD nudging higher and short-term gains in the Canadian Dollar likely capped.

Tariff threat keeps CAD restrained

"President Trump is threatening 50% tariffs on some Canadian exports in response to “unfair treatment” of US autos, dairy and alcohol. The tariffs will become effective in 30-days—giving time for an off ramp to be found perhaps—and might hit some 5% of Canadian exports into the US, early estimates suggest."

"The CAD is opening up modestly higher against the generally softer USD after reversing losses seen overnight on news that the US is poised to impose more tariffs on Canadian exports."

"The CAD has largely taken the news its stride but it is another minor headwind to add to all the other trade-related drags that will keep the currency trading on the back foot, all else equal. Our fair value estimate for spot has nudged up to 1.4015 this morning."

"Neutral—The CAD’s latest stumble leaves spot trading right on the 40-day MA (1.4059). A solid rebound in the USD yesterday suggests the mild improvement in the CAD of late has found a short-term peak at least around the 1.40 point."

"The break under the USD May/June bull trend line remains intact, as do the CAD-supportive signals from the daily oscillators which prompts us to think that spot may not rise significantly—at least not yet. USD resistance remains 1.4125 and 1.4160/70."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)