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Canadian dollar faces downside as trade-war escalation risks rise

MUFG said the 50% tariff applied to USD 20 billion of Canadian exports is only about 5% of Canada’s US exports, but longer unresolved escalation could worsen CAD underperformance.

Reported · Written up by our desk · Major Pairs

MUFG strategist Derek Halpenny said the Canadian dollar’s reaction to new US tariffs on USD 20 billion of Canadian exports is more likely to be driven by escalation risks than by the initial measures themselves, warning that investors could price in greater economic harm for Canada if the dispute drags on.

According to Halpenny, CAD has underperformed versus other G10 currencies after negotiations broke down, and tit-for-tat tariffs plus fading support from higher oil could intensify downside if there is no resolution.

He noted that the specific tariff is 50% and began Saturday at 12:01am, covering a range of goods including beer, wine, spirits, milk products, and hockey equipment.

Halpenny added that a quick US retaliation would likely force Canadian Prime Minister Justin Carney to match dollar for dollar, raising the risk that investor confidence could be hit more severely and that CAD downside risks grow the longer the trade war remains unresolved.

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