By Michael O’Neill
Donald Trump lit a fire under US. dollar bears yesterday and the Loonie soared, along with its G-10 peers. Trump claimed to be happy with the value of the dollar, saying, “I think it’s great,” and FX traders immediately tried to discover the level that would make him unhappy.
That level may be far lower.
Rebecca Patterson, a senior fellow at the Council on Foreign Relations suggested Trump’s actions were following the “User’s Guide to Restructuring the Global Trading System” script. That’s the paper written by Stephen Miran (Trump’s man on the FOMC and the former head of his Council of Economic Advisers) that became known as the Mar-a-Lago Accord. Briefly, it was a blueprint to reduce the US. trade deficit by imposing a rash of tariffs and devaluing the dollar.
The greenback was already on the defensive because of well-founded fears that the White House would subvert the Fed’s independence (another Mar-a-Lago Accord objective), as well as erratic tariff pronouncements and the administration’s desire to annex Greenland. The BoC rate decision didn’t hurt.
Bessent Didn’t Get the Memo
The US. dollar staged a modest rebound today after Treasury Secretary Scott Bessent told CNBC that the US. always has a strong dollar policy. “But a strong dollar policy means setting the right fundamentals.” He also denied that the US. is intervening to sell USDJPY. The Treasury Secretary “doth protest too much.” Perhaps he was trying to prevent the dollar slide from accelerating, and he may have wanted to slow the rise in Treasury yields.
The Bank of Canada Keeps Rates in Park
The Bank of Canada left its policy rate unchanged at 2.25%, holding the Bank Rate at 2.50% and the deposit rate at 2.20%. The decision surprised no one.
Governor Tiff Macklem justified the inaction succinctly saying, “Bottom line is we agreed that the current policy rate is appropriate if the economy evolves broadly in line with the outlook we just published.”
But he is far from confident noting that uncertainty around the outlook remains elevated. Mr. Macklem said “Some things are clear. It’s clear that the era of open rules-based trade with the United States is over. It’s clear that our population growth has come down and is going to stay lower. It’s clear that new technologies, particularly rapid advances in AI, have the potential to have a significant impact on businesses and the economy.
Clearly, he is not amused.
Investors Downgrading America’s Safe-haven Status
The United States has long served as the preeminent destination for safe-haven assets during times of global crisis. If it were a hotel, it would be the opulent Burj Al Arab in Dubai often considered a 7-star property. But not anymore. Trump’s ‘America First’ agenda, defined by protectionist rhetoric, erratic policy swings, and a swelling debt burden, suggests the US. is becoming more Courtyard by Marriott than anything else.
The Law of Unintended Consequences
The Trump administration aims to make America Great Again at the expense of the rest of the world but, as Robert Burns (1785) wrote, “the best laid plans of mice and men…”.
Trump’s aggressive trade strategy toward China is a central pillar of his “America First” agenda, designed to fundamentally reset the economic relationship between the two superpowers. The reset part is working, but probably not according to plan.
By weaponizing the dollar and treating allies like vassals, the White House has achieved the unthinkable. It has led to a realignment of global trade away from America and into the waiting arms of China and India. World leaders grew tired of tariff deals that were changed at a whim and opted to sign deals with Beijing and New Delhi. That’s a potential market of 2.8 billion people compared to the US. with around 342 million.
Canada formally reduced tariffs on Chinese electric vehicles to 6.5% from 100%, while China resumed purchases of Canadian agricultural products. The European Union lowered tariffs on Chinese battery cells to 12% alongside a Chinese price floor on EV exports, with both sides describing the agreement as a “landmark trade deal.” The EU and India separately agreed to sweeping tariff reductions over seven years.
Even the United Kingdom relationship that Prime Minister Keir Starmer described as “forged in difficult circumstances, endured for so long, and stronger now than ever” has ruptured. Starmer is a leading a major trade delegation to China and meeting President Xi Jinping today.
The Loonie is riding high on an American-generated updraft, as trade disruption and policy volatility do the lifting, but how long it lasts is anyone’s guess.
