EBC Markets Briefing | Loonie rocked by US-Canada rivalry

The Canadian dollar was steady on Tuesday following a sharp rebound from multi-year lows. The US dollar dropped as Trump paused new tariffs on Mexico which has tightened border control for one month.

The Canadian economy is set to face a severe shock and will probably sink into the first recession in 16 years outside of the pandemic if a tariff war persists, say top economists.

They predict PM Justin Trudeau’s plan to retaliate on C$155 billion worth of American-made products will trim real GDP growth by 2-4% and inflation growth will overshoot the 2% target.

Energy patch may have temporarily dodged disaster in the trade war with the US, with crude taxed at a lower rate and possibly letting producers avoid levies altogether on some shipments.

Still it is a blow to a North American energy market that has been highly integrated for decades. Canada is the US’s largest foreign source of crude with 84% of its output from Alberta.

According to a new KPMG survey on trade tension, a majority of Alberta business leaders say Canada should retaliate against US tariffs to protect sovereignty and values, even if it causes economic pain.

Loonie has been on a rollercoaster and returned to its recent trading range this week. However, the risk remains skewed towards the downside as Trump will likely impose new tariffs on Europe soon.

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