The Canadian dollar has experienced significant fluctuations this week following news from the White House, creating waves of uncertainty across the currency markets. On March 7, 2025, President Trump announced the cancellation of previously planned 25% tariffs on imports from Canada and Mexico, but he made it clear they would reinstate them by April 2025. This delay and the mixed messages have led to widespread selling of the U.S. dollar.
Despite these tariffs being put on hold by the U.S., Canada reacted differently. According to reports, Canada will maintain its own 25% tariffs on approximately $30 billion worth of U.S. imports. This move is not just passive; Ontario Premier Doug Ford has also confirmed the province's 25% tariff on electricity exports will remain firmly in place, showcasing the regional rift exacerbated by U.S. tariff policy.
On the job front, Canada is predicted to have added 20,000 jobs during February 2025, though this number is anticipated to push the unemployment rate to 6.7%, reflecting no change from the previous month. Some analysts predict this lackluster employment report could stir additional volatility. "A weak report will send USDCAD higher," one market analyst noted, as traders reassess the impacts of tariff threats on Canadian exports.
Currency markets are reacting dynamically. The USDCAD trading pair opened at 1.4315, fluctuated between 1.4280 and 1.4320 overnight, and closed at 1.4296. By approximately 10:00 A.M., the market was poised for choppiness, with about $1.2 billion of option strikes around the 1.4290-1.4300 area and $870 million of options at 1.4315-1.4325 also nearing expiration. An estimated $3.8 billion of option strikes at 1.4350-1.4360 will also have significant influence on the outcomes today.
Further complicate matters is the anticipated U.S. nonfarm payrolls report, which is projected to indicate a gain of 160,000 jobs, up from last month's 143,000 gains, with the unemployment rate expected to remain unchanged. A stark deviation from predictions could weaken the greenback even more, contemporaneously creating additional pressure on USDJPY, which fell from 148.17 to 147.21 as investors grew wary of Trump's tariff policy and various geopolitical concerns.
While the CAD fluctuates, other currencies are seeing their swings influenced by various economic updates. The EURUSD traded within the range of 1.0781 to 1.0871. Positive support came as Eurozone GDP for Q4 rose by 1.2% year-over-year, which surpassed the forecast of 0.9%. Against this backdrop, the European Central Bank (ECB) announced on March 7 its decision to lower its benchmark rate by 25 basis points to 2.5%. While this move was already expected by market participants, it did not combine to immediately boost sentiment as broader defense spending plans by Germany and other EU nations also didn't go unnoticed, as they are planned to ramp up significantly.
Things looked equally optimistic for GBPUSD, which climbed from 1.2876 to 1.2945. Recent data from the UK signals expectations from market participants for the Bank of England to lag behind the Federal Reserve concerning rate cuts, thereby giving the pound additional support. Interestingly, domestic housing price data was disregarded amid this positive sentiment.
On the commodity currencies front, the Australian dollar (AUD) continues to trade within the fairly narrow range of 0.6297 to 0.6336, impacted by conflicting signals. The currency managed to find support owing to the widespread selling of the U.S. dollar; nonetheless, the gains were somewhat muted following disappointing trade data showing declines in exports from China.
The U.S. dollar's declining status, compounded by the unclear direction from the Trump administration, continues to create waves of challenges for investors and traders alike. Given the backdrop of uncertain tariff policies and mixed economic signals, many are left wondering how international markets will regroup as they navigate these unpredictable waters. This drama at the intersection of policy and global trade could set the stage for turbulent months to come for the Canadian dollar and the currencies on the global stage.