The Canadian dollar remained stable on Thursday as investors analyzed signals from the U.S. on potential trade tariffs and reacted to an expected interest rate cut by the European Central Bank. Meanwhile, Canadian bond yields fell as global markets adjusted to shifting economic conditions.
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Currency Performance and Market Trends
The loonie traded nearly unchanged at 1.4415 per U.S. dollar (equivalent to 69.37 U.S. cents), fluctuating between 1.4393 and 1.4436 throughout the day. This follows last week’s drop to a near five-year low of 1.4515, with the currency down 6% since October.
Karl Schamotta, Chief Market Strategist at Corpay, noted that global currency markets have stabilized after recent central bank decisions. Additionally, remarks from Howard Lutnick, U.S. Commerce Secretary nominee, suggested that Canada and Mexico could be exempt from impending 25% tariffs if they take decisive action against fentanyl trafficking.
Donald Trump Hints at 25% Tariffs on Canadian Imports Starting February 1
Could U.S. Tariffs Push the Canadian Dollar to Record Lows? Loonie on the Edge
How Potential Tariffs Could Affect Your Wallet: What You Need to Know
Canada’s Rising Threat to Cut U.S. Electricity Supply Due to Tariffs
Loonie Falls as Markets Anticipate Canada’s Response to US Tariff Threat
U.S. Trade Threats and Canada’s Response
Former U.S. President Donald Trump has previously warned of 25% tariffs on Canadian and Mexican imports, a stance reinforced by a White House spokesperson earlier this week. However, Lutnick’s comments provide hope that diplomatic negotiations could prevent these tariffs from taking effect.
Bank of Canada’s Interest Rate Cut
On Wednesday, the Bank of Canada cited trade uncertainty as a major factor behind the loonie’s decline and responded by cutting its benchmark interest rate by 25 basis points. This move aimed to support the economy amid ongoing trade tensions and a weakening currency.
Oil Prices and U.S. Market Influence
As Canada exports 75% of its goods to the U.S., trade relations play a crucial role in the loonie’s valuation. Oil, one of Canada’s most significant exports, touched a four-week low of $72.02 per barrel before recovering some losses.
Meanwhile, the U.S. dollar weakened against other major currencies following weaker-than-expected U.S. economic growth data, adding further uncertainty to global markets.
Canadian Bond Yields Decline
Reflecting broader market trends, Canadian bond yields eased, tracking movements in U.S. Treasuries and European bonds. The 10-year Canadian bond yield dropped 1.8 basis points to 3.155%, after briefly hitting its lowest level since December 12 at 3.120%.
Looking Ahead: Stability or More Volatility?
With trade negotiations, economic growth, and central bank policies shaping the financial landscape, investors remain cautious. The Canadian dollar’s stability will largely depend on upcoming U.S. trade policy decisions, oil price trends, and further economic data releases.
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