Long

HSBC on USDCAD

With mere hours to go before the US potentially imposes 25% tariffs on Canada, the currency is proving remarkably stable. True, USD-CAD has moved higher over the last week, but this has only brought it back into line with 2Y yield differentials. There is no evidence of any risk premium in the CAD to take account of the adverse economic impact of possible tariffs. One might argue that such risks are indirectly captured through the interest rate differential, but the market is only priced for 70bp of easing by the BoC over the remainder of 2025. In the absence of tariffs, we would likely have seen a minimum of 50bp more of cuts, so it is hard to argue that the markets have built in much by way of tariff risks. Remember, the BoC forecasts recession in 2025 should 25% tariffs be imposed with Canada (and others) retaliating in kind. The FX market presumably hopes the deadline will be extended, or the tariff threat removed altogether. Perhaps, but President Trump has continued to sound hawkish in all other aspects of his trade policy over recent days. It is not clear that another reprieve looms for Canada. We retain our open trade idea to buy USD-CAD.

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AccuTrade2000

1. AccuTrade System:
tradingview.com/v/yDFPnb1J/
2. Signal Performance:
thedailyfx.com/performance/
3. We provide Free TradingView Premium and Essential Membership.

Also on: