Impact of Tariff Wars: Canadian Dollar Weaker than Mexican Peso

The Canadian dollar has declined more than the Mexican peso since President Trump’s inauguration, attributed to higher tariff exposure and challenges in negotiations. Analysts highlight the contrast between Canada’s and Mexico’s approaches, which has led to Mexico’s stronger currency position despite both countries facing tariff threats.

The Canadian dollar has exhibited more vulnerability in the current economic climate compared to the Mexican peso, particularly since the inauguration of President Donald Trump. Since January 20, the loonie has depreciated by 0.5% against the U.S. dollar, while the peso has appreciated by 3.5%. Among a group of 16 major currencies, the Canadian dollar ranks second to last in returns.

Analysts attribute the relative weakness of the Canadian dollar to its higher exposure to tariff-related pressures. According to Nick Rees of Monex Europe Ltd., Canada faces greater challenges in negotiating concessions than Mexico. This has rendered the loonie more susceptible to economic fluctuations, especially with the hardline approach anticipated from Mark Carney, the incoming Prime Minister.

Carney’s recent remarks suggest a firm stance against U.S. tariffs, asserting that Canada will maintain retaliatory measures until it receives proper respect. In contrast, Mexico’s President Claudia Sheinbaum has adopted a more restrained approach, focusing on negotiations for favorable tariffs. U.S. Commerce Secretary Howard Lutnick commended Mexico and the UK for their responses, implying criticism towards Canada’s retaliatory actions.

A report from JPMorgan Chase highlighted the improved communication between Mexico and the U.S. administration, facilitating smoother negotiations. Despite the absence of distinct export treatment thus far, analysts predict that Mexico may achieve some exemptions, particularly regarding automotive tariffs. The deadline for further tariff details is set for April 2, coinciding with the expiration of Trump’s current tariff extension.

Derek Holt from the Bank of Nova Scotia stated that while the peso suffered a significant decline last year, it is now considered to have been front-loaded regarding currency depreciation compared to the Canadian dollar. Sarah Ying from CIBC Capital Markets noted that the Canadian dollar has weakened more significantly in light of President Trump’s tariff threats and the anticipated monetary easing from the Bank of Canada.

The Canadian dollar’s performance has been notably impacted over the recent months, suffering more than the Mexican peso amid rising tariff tensions prompted by the U.S. administration. Analysts emphasize that Canada’s economic structure leaves it more exposed to tariff threats, leading to a weaker currency. With the new leadership of Prime Minister Mark Carney, retaliatory measures appear to persist, potentially exacerbating the loonie’s vulnerability as negotiations with the U.S. evolve.

Original Source: financialpost.com