USD/CAD Falls as Trade War Escalates, Markets Await Trump's Address to US Congress

04.03.2025

Today's expected range for the Canadian Dollar against the major currencies:

US Dollar 1.4330-1.4550

Euro 1.5110-1.5330

Sterling 1.8280-1.8500

WTI Oil (opening level) $67.14

The CAD/USD is opening at 1.4421 ( 0.6934 )

The USD/CAD pair corrected sharply to around 1.4420 in European trading hours on Tuesday from the monthly high of 1.4542 posted on Monday. The pair declines as the CAD outperforms across the board after Trudeau announced retaliatory tariffs on the USA.

There is a underlying threat to the strength of the USD as the talk of interest rate reductions in the USA will probably weaken the USD strength in the market place.

So expect the unexpected for the near term.

Headlines

· Trade War begins. President Trump said 25% tariffs on Canada and Mexico will go forward today (no word on whether an order has been signed to that effect) and signed an order to double the new 10% tariffs on China to 20% at the last moment. Both Canada and China moved with retaliatory tariffs. China said it would apply 15% tariffs on some US food imports, including chicken, pork, beef, wheat and soy, among other products. The tariffs would take effect March 10. Canada responded with a package of tariffs on USD 107 billion of US imports to go into effect immediately.

· Trump spoke out against countries that have excessively weak currencies and threatened tariffs against those countries, specifically naming Japan and China. Japan’s PM Ishiba denied intentional currency weakening.

· Trump said he would consider a free trade agreement with Argentina

· Trump announced a suspension of military aid to Ukraine, while also saying that he didn’t think the minerals deal with Ukraine is dead, with an update to come “tonight”, US time.

· Trump claimed that Taiwanese chipmaker TSMC will build five additional chip factories in the US with investments totaling USD 165 billion.

Key Points

· Equities: Trump confirms tariffs; S&P 500 -1.76%, Nasdaq -2.6%; defense stocks surge in Europe; Asia lower on tariff fears

· Volatility: VIX +16% to 22.78; VIX futures stable; market stabilization possible

· Digital Assets: Bitcoin -10% to < $84K; Ethereum -14%; crypto stocks slump; Trump’s crypto summit in focus

· Currencies: JPY rebounds on Trump criticism on its currency policy. CAD lower on fresh Trump tariffs

· Fixed Income: Huge divergences as US yields plunge on tariffs after spike in European yields yesterday on anticipation of German fiscal expansion.

· Commodities: Tariff focus lifts gold while corn and crude slump

· Macro events: US President Trump to speak before US Congress, China Feb. Caixin Services PMI

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