The Canadian dollar fell to its lowest level since May 2020 after Donald Trump threatened to impose tariffs on Canadian goods shipped to the United States once he takes office in January.
The threat of tariffs added a further drag on the loonie, which has been moving lower against the US dollar since September.
The loonie was at 71.01 cents US in early afternoon Tuesday trading after dipping below 71 cents US earlier in the day.
A weak Canadian dollar typically affects the tourism industry as consumers face higher costs abroad in destinations where rates and goods are priced and/or paid for in US dollars.
BMO Capital Markets senior economist Robert Kavcic said financial markets were responding to increased risk on the trade front.
“It’s a pretty stiff headwind against the currency that’s already been under pressure just from domestic economic factors,” he said, adding that the loonie was already being pressured by a softer Canadian economy and interest rate cuts by the Bank of Canada.
A weak Canadian loonie typically affects the tourism industry as consumers face higher costs abroad in destinations where rates and goods are paid for in US dollars.
Trump posted to Truth Social on Monday that he will impose a 25% tariff on all products from Canada and Mexico. He said the tariff will remain in place until both countries stop drugs, in particular fentanyl, and people from illegally crossing the borders.
However, Trump’s edict on social media isn’t US government policy yet and even if it comes to pass, it may only be temporary as the president-elect linked it to conditions regarding the border.
Karl Schamotta, chief market strategist at Corpay, noted that investors don’t expect Trump to follow through.
“Canadian Prime Minister (Justin) Trudeau has already shown signs of capitulating to Trump’s demands, and the president-elect’s history would suggest that last night’s post simply represented an opening gambit in the negotiation process,” he wrote in a note to clients, adding, “The Canadian dollar seems poised for modest reversal to the upside once traders assess the situation from a more nuanced perspective.”
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