Canadian Prime Minister Justin Trudeau said on Sunday that Canada is ready to respond with counter-tariffs against the United States if President-elect Donald Trump follows through on his threat to start a trade war in North America. according to Bloomberg.
Core values
“As we did last time, we are ready to respond with taxes as needed. “
“We are the main export partner of about 35 different US states and anything that thickens the border between us costs American and American citizens jobs.”
“Less than 1% of the illegal immigrants, less than 1% of the fentanyl that comes into the United States, comes from Canada. So we are not a problem,”
“We have really responded to his request that we do more with billions of dollars worth of investments to further strengthen our border security.”
Market response
The USD/CAD pair is trading 0.08% lower on the day at 1.4418, as of writing.
Canadian Dollar FAQ
The main factors driving the Canadian Dollar (CAD) are the interest rate set by the Bank of Canada (BoC), the price of Oil, Canada's largest export, the health of the economy, inflation and the Balance Trade, which is the difference between the value of Canadian exports and imports. Other factors include market sentiment – whether investors are taking ownership of riskier assets (risk on) or seeking safe havens (risk off) – with risk being CAD positive. As its largest trading partner, the health of the US economy is also a major factor affecting the Canadian Dollar.
The Bank of Canada (BoC) has a major influence on the Canadian Dollar by setting the interest rates that banks can lend to each other. This affects the interest rate for everyone. The main objective of the BoC is to keep inflation at 1-3% by adjusting interest rates up or down. Higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of oil is a major factor affecting the value of the Canadian Dollar. Canada's largest export is petroleum, so the price of oil tends to have an immediate effect on the CAD value. In general, if the price of oil rises CAD will also rise, as aggregate demand for the currency will rise. The opposite is true if the price of Oil falls. Higher oil prices also tend to lead to a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
Although inflation has traditionally been thought of as negative for a currency as it reduces the value of money, the opposite has been true in modern times with the relaxation of cross-border capital controls. Higher inflation tends to force central banks to raise interest rates which will attract more capital inflows from global investors looking for a profitable place to keep their money. This increases demand for the local currency, which in Canada's case is the Canadian Dollar.
Macroeconomic data releases measure the health of the economy and can affect the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMI, employment, and consumer sentiment surveys can all influence the direction of CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more money from abroad but it could encourage the Bank of Canada to raise interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
Source: https://www.fxstreet.com/news/canadian-pm-trudeau-says-has-counter-tariffs-ready-if-trump-launches-a-trade-war-202501122321
