The Canadian dollar went on a wild ride Monday, trading below 68 cents U.S. in anticipation of Donald Trump’s 25 per cent tariffs only to soar over 2.5 per cent on news of a reprieve later that day. 

The loonie rose to 69.5 cent U.S. after hitting an intraday-low in the early hours of Monday of 67.8 cents U.S., slumping to levels last seen in 2003, experts said.

“Currency markets are experiencing another bout of whiplash after a telephone conversation between Canadian Prime Minister Justin Trudeau and U.S. President Donald Trump resulted in a 30-day postponement to tonight’s tariff deadline,” Karl Schamotta, chief market strategist at Corpay, said in a note following an announcement that Trump had agreed to a month-long reprieve on tariffs, similar to what the U.S. president offered to his Mexican counterpart, Claudia Sheinbaum, earlier in the day.

Schamotta said the postponement lifted the Canadian dollar against the greenback by about 100 basis points leaving it “flat relative to Friday’s open.”

But Schamotta warned that more turbulence lies ahead for the currency.

“As has become routine in the last few weeks, we would caution that the situation remains vulnerable to sudden changes, but it does appear that — for now at least — the threat of a catastrophic blow to the Canadian economy has been lifted,” Schamotta said.

Overall, the loonie has fallen 4.15 per cent since Trump was elected president, up from the 5.25 per cent loss it had logged earlier Monday.

“We expect further currency gains to play out in the coming days, but note that the relief rally can only extend so far: investment and sentiment levels in Canada have taken a severe hit, and it is unclear just how long today’s reprieve will last. Traders will remain prepared for asymmetric downside risks in the U.S. dollar-Canada pair for now,” Schamotta said.

As the trade rhetoric has escalated, signs had been building that the loonie could be in for a significant ride down.

Currency watchers at Canadian Imperial Bank of Commerce forecasted Monday for the Canadian dollar to fall as low as 66 cents U.S. if tariffs are implemented and the trade dispute lasts more than six months.

In another sign early Monday of the multiple challenges facing the loonie, the U.S. dollar index “screamed higher … challenging the two-year highs posted in mid-January,” economist David Rosenberg, founder of Rosenberg and Associates Inc., said in a Monday morning note.

The U.S. dollar index measures the international value of the greenback against a basket of other major currencies including the loonie.

“The (U.S.) dollar is stronger across the board,” Derek Holt, vice-president and head of capital markets economics at the Bank of Nova Scotia, said in a note on Monday. “Trump just doesn’t get it. U.S. tariffs on net reduce demand for foreign currencies through the harm to imports and raise safe haven appeal for the dollar.”

Holt said that tariffs will only increase the appeal of the U.S. dollar thereby widening the country’s trade deficit, which has been one of the president’s major concerns and apparent drivers for launching this trade war against his two main commercial partners.

“He’ll do more to strengthen the dollar, and on we keep going with the usual lagging effects,” Holt said.

CIBC’s currency team said in a note early Monday that “the tariff premium in USD/CAD now looks to be about four per cent,” although with bets rising for another Bank of Canada rate cut there could be a further 1.5 per cent risk.

Last week, The Canadian dollar governor Tiff Macklem called U.S. tariffs a “major uncertainty” during a press conference after policymakers cut rates by 25 basis points to three per cent.

In the statement accompanying the decision, the central bank said: “If broad-based and significant tariffs were imposed, the resilience of Canada’s economy would be tested. We will be following developments closely and assessing the implications for economic activity, inflation and monetary policy in Canada.”

On the same day, the United States Federal Reserve held its policy rate in the range of 4.25 to 4.50 per cent as policymakers there cited a strong labour market, stickier inflation and uncertainty regarding the direction of the Trump administration.

Bonds reflected that dynamic. The price of Canadian bonds soared as traders increased bets that the Bank of Canada will be forced to cut interest rates at its next meeting in March to try and protect the Canadian economy. The price of the Canada two-year government bond rose 0.3 per cent while, the yield fell to 2.44 per cent, its lowest level since 2022.

• Email: gmvsuhanic@postmedia.com

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