MUFG: USD/CAD rise to 1.50-1.60 vary on broad 25% US tariffs

MUFG warns 25% tariff on all Canadian imports by the US may push USD/CAD right into a 1.50-1.60 vary. Whereas markets stay optimistic that negotiations will dilute or avert the tariff risk, escalation dangers loom as the first February deadline approaches.

Key Factors:

• Latest USD/CAD Strikes:

  • USD/CAD hit a excessive of 1.4516, breaking 1.4500 for the primary time since March 2020, however retraced beneficial properties as optimism a few potential tariff decision grew.
  • Buyers imagine negotiations may result in carve-outs or a lowered tariff charge.

• Tariff Impression on USD/CAD:

  • A broad 25% tariff would doubtless push USD/CAD properly above its 2020 (1.4668) and 2016 (1.4690) highs, with a transfer into the 1.50-1.60 vary, final seen in 2003, coming into play.
  • Dangers to Canada’s economic system from retaliatory measures and exterior demand loss may exacerbate CAD weak spot.

• Canada’s Place and Response:

  • Canada’s inflation backdrop is extra favorable than the US, doubtlessly permitting the Financial institution of Canada (BoC) to decrease charges to cushion the financial blow.
  • Prime Minister Trudeau has indicated help for dollar-for-dollar retaliation if tariffs are carried out.

• Forecast Changes:

  • MUFG’s present Q1 and Q2 USD/CAD forecasts of 1.4500 and 1.4400 don’t incorporate the potential tariff situation.
  • Ought to the tariff be carried out, USD/CAD would see important upside, relying on the result of negotiations.

Conclusion:

Whereas markets stay eager for a negotiated decision, a failure to avert tariffs may propel USD/CAD to ranges not seen since 2003. Buyers will intently monitor developments as the first February deadline approaches.

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This text was written by Adam Button at www.ubaidahsan.com.



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