Analysis: Canadian Dollar More Vulnerable than Mexican Peso Amid Tariff Wars
The Canadian dollar is depreciating more than the Mexican peso amidst tariff disputes initiated by President Trump. Experts indicate Canada’s economy is more vulnerable to these tariffs. Recent negotiations suggest Mexico may have a better position to secure concessions on tariffs, which could impact future monetary policies in Canada.
The Canadian dollar is currently experiencing greater depreciation compared to the Mexican peso amidst ongoing tariff disputes initiated by President Donald Trump. Since January 20, the loonie has fallen by 0.5% against the U.S. dollar, while the peso has risen by 3.5%. A comparison involving 16 major currencies reveals the Canadian dollar positioned nearly at the bottom of total returns, while the peso ranks eighth.
Several experts attribute the peso’s relative stability to Mexico’s capacity to make concessions to the U.S., thus mitigating tariff threats. Nick Rees from Monex Europe Ltd. indicated that Canada’s economy is more susceptible to tariff impacts, making the loonie more vulnerable. The anticipated hardline approach of recently elected Prime Minister Mark Carney further complicates Canada’s position.
In contrast, Claudia Sheinbaum, the President of Mexico, has maintained a cautious negotiation strategy regarding tariffs. Recent observations highlight that U.S. Commerce Secretary Howard Lutnick has commended Mexico for its tactful responses while criticizing Canada’s retaliations. Analysts from JPMorgan Chase note Mexico’s favorable negotiation position may yield some exemptions from tariffs, specifically in the auto sector.
Derek Holt of Bank of Nova Scotia explains that the peso had already experienced significant devaluation last year, with a 17% decline since April, whereas the Canadian dollar has fallen 6% in the same timeframe. The current conditions suggest that the Canadian dollar has weakened more significantly as the Trump administration’s tariff threats disproportionately affect Canada.
As market sentiments trend downwards, there is speculation that the Bank of Canada may need to lower interest rates due to increasing uncertainty surrounding tariffs. Additionally, Stats Canada reported a notable rise in total household net worth, indicating a financial uptick despite external economic pressures.
In summary, the Canadian dollar is facing more substantial declines compared to the Mexican peso, primarily due to Canada’s economic vulnerability and more confrontational tariff strategies post-Trump’s administration. Analysts suggest that Mexico’s diplomatic approach may facilitate more favorable outcomes in negotiations, while Canada may struggle under aggressive tariff threats. As this economic landscape evolves, attention should be directed towards potential monetary policy changes from the Bank of Canada in response to these challenges.
Original Source: financialpost.com
