USD/CAD returns below 1.3600, with YTD lows, at 1.3540 coming into view
- The US Dollar extends losses on a brighter market mood after the US-Japan trade deal.
- Concerns about the failure of the negotiations between the US and Canada are likely to weigh on the CAD.
- Oil prices remain depressed, which is another headwind for the Loonie.
The US Dollar extends its decline for the fourth consecutive day, with the Canadian Dollar supported by a brighter market mood, as the trade deal between the US and Japan provided some certainty about the outlook of global trade and boosted hopes of more such deals.
USD/CAD has extended its downtrend to levels below 1.3600. The pair has depreciated by about 1.20% over the last four trading days and is currently trading at 1.3585, drifting closer to the year-to-date lows of 1.3540, reached in mid-June.
The Loonie faces headwinds from trade tariffs, Oil prices
Canada continues to negotiate with the US, aiming to avoid the 35% levy announced by US President Trump earlier this month. Hopes of a trade deal before the August 1 deadline, however, are scarce, as the positions of both countries seem to be stalled.
Canadian Prime Minister Mark Carney dampened hopes of an imminent breakthrough on Tuesday and suggested that Canada might leave the table without an agreement, as he refused the possibility of reaching a deal “at any cost”.
Apart from that, Crude prices keep trading lower on concerns that higher supplies from producer countries and lower demand amid global trade restrict¡ions might lead to an Oil glut in the coming months. Canada is one of the world’s major Oil exporters, and these low prices are likely to act as headwinds for the Loonie.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.