February 2, 2025
Agility Forex Special Report
USDCAD soared in the early hours of Asia on Monday morning, spiking to 1.4750 from Friday’s NY closing level of 1.4534. The nearly 1.5% rise is all thanks to Donald Trump.
Trump fired a fresh shot at Canada issuing an Executive Order that slaps a 25% tariff on all Canadian imports and 10% on all energy resources. In addition, the previous Declaration of a National Emergency at the southern border was expanded to include Canada.
Then came the not-so-veiled threat: “should Canada retaliate… the President may increase or expand in scope the duties imposed under this order.”
Canada flipped Trump the bird. The Trudeau government in cooperation with the provinces rolled-out $30 billion of counter-sanctions effective today, followed by another $125 billion in three weeks.
It’s a blunt-force economic brawl, but why is Trump targeting Canada? Simple: leverage and optics.
Lies and Leverage
- the fentanyl claim is complete fiction. According to U.S. Customs and Border Protection (CBP), less than 0.2% of fentanyl seized at U.S. borders comes from Canada. The DEA’s own reports confirm that Mexican cartels dominate fentanyl production and smuggling, using chemicals sourced from China.
- His rhetoric on illegal migration from Canada is greatly exaggerated. Northern border crossings may have increased but there have been zero reports of massive caravans of “illegals” amassing on borders in Quebec or anywhere else.
So, if Canada isn’t actually the problem, what’s Trump’s real play? Trade leverage disguised as national security policy.
And, in classic Trumpian fashion, he added some MAGA-flavored nonsense on TruthSocial:
“We pay hundreds of Billions of Dollars to SUBSIDIZE Canada. Why? There is no reason. We don’t need anything they have. Without this massive subsidy, Canada ceases to exist as a viable Country. Harsh but true!”
Harsh? Maybe. True? Not even close.
New Use for USMCA Trade Deal
Fortunately, Canada and the US have a trade deal that is not up for review until 2026. The United States Mexico Canada Agreement on trade was signed by Trump in January 29,2020. At the time he boasted:
“We have replaced a disastrous trade deal. This is something we really put our heart into. It’s probably the No. 1 reason that I decided to lead this crazy life that I’m leading right now as opposed to that beautiful simple life of luxury that I left before this happened. But I love doing it.”
And therein lies the problem. Trump’s “love” of trade negotiations suggests that the latest bout of tariffs is trade leverage disguised as national security policy. Canada, with 67% of its economy reliant on trade, is an easy economic target.
There are, and will be, terabytes and terabytes of analysis on the real and imagined impact of tariffs on the Canadian and American economies. An often-repeated statistic is that Canada’s GDP could fall by 2.0-2.5%, but that was based on 25% tariffs. What happens if Trump doubles them?
The Loonie is Collateral Damage
The immediate victim is the Canadian dollar. USDCAD reached 1.6220 in the aftermath of the 911 crisis. (Remember, that was when America considered Canada a friend and ally). That is a reasonable target if it is a prolonged trade war. Fibonacci retracement analysis suggest that a decisive move above 1.4750 targets the 1.5020 area and then 1.5500. However, the initial reaction is occurring in something close to a vacuum as Chinese markets are still closed. Nevertheless, for now the world wants to own US dollars.
For the next few days, USDCAD support is at 1.4660 and 1.4580, Resistance is at 1.4750 and 1.4860.
President Trump fired the first shot, declaring an economic war on Canada. Even if it is just a negotiating tactic, it is bad news for the Loonie.
Source Oanda
