The Canadian Dollar weakened against the US dollar, largely influenced by external factors.
Yesterday, the U.S. House of Representatives passed the USD 4.5 trillion tax-cut plan proposed by Trump, a move expected to stimulate business activity and attract investment to the US, potentially diverting capital away from Canada, as well as from Mexico, the third NAFTA partner.
A significant impact on Canada’s foreign investment inflows could potentially compromise economic growth, creating a bearish outlook for the Loonie.
Trump’s recent decision to impose tariffs on copper imports further compounded the already uncertain outlook.
While previous tariffs on Canada were postponed for a month, the looming risk of protectionist measures could disrupt trade flows and increase market volatility, benefiting the US dollar. In addition, if implemented, this could fuel inflationary pressures in Canada, raising concerns over economic growth and increasing the selling pressure on the currency.
Domestically, preliminary wholesale data reported a 1.8% increase in January. This alone should not offset global market sentiment if not followed by robust economic reports, thus the Loonie is likely to remain under pressure.
Looking forward, investors will closely monitor this week’s Canadian GDP growth rate. Strong economic data should provide temporary relief to the currency, while weak figures would reinforce its downward trajectory.
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