US imposes tax, market worries
The Canadian dollar continued to decline against the U.S. dollar in volatile trading on Friday, driven largely by concerns about U.S. tariffs on Canadian imports, including oil. Despite the possibility of some Canadian oil being exempted, the market reacted negatively.
At the end of the session on January 30, the CAD/USD exchange rate decreased by 0.2% to 1.4524, equivalent to 68.85 US cents. During the day, this currency fluctuated between 1.4374 - 1.4558 CAD/USD. Overall, the Canadian dollar decreased by 1% in January, marking the fifth consecutive month of weakness - the longest losing streak since 2016.
“The question is how much further can USD/CAD go,” said Amo Sahota, director of Klarity FX in San Francisco. “Technical experts are looking at the 2020 and 2016 highs around 1.47. Some are predicting that USD/CAD could quickly break through that level and head to 1.50.”
US President Donald Trump announced that his administration would impose tariffs on oil and gas. Some oil imported from Canada may be subject to a 10% tariff. However, the Canadian stock market did not take the news positively.
Canada's main stock index fell 1.1% in late trading, with energy stocks leading the decline. Earlier, the White House confirmed it would impose 25% tariffs on imports from Canada and Mexico on Saturday, and 10% tariffs on Chinese goods immediately.
Bank of Canada steps in
The Bank of Canada (BoC) said Wednesday that the main reason for the Canadian dollar's decline was increased uncertainty about trade policy. To support the economy, the BoC cut its key interest rate by 25 basis points to 3%.
The yield on the benchmark 10-year Canadian government bond also fell three basis points to 3.092%, after hitting its lowest since Dec. 11 at 3.062% in the previous session.
The Canadian dollar’s continued weakness is worrying markets, especially amid the increasingly tight U.S. trade policy. Investors will continue to monitor new moves from the U.S. government and the Bank of Canada to predict the next direction of the currency.
