Image Credit: The New York Times

Dollar Rises, Loonie Falls as Trump Announces New Tariffs

The U.S. dollar gained ground on Monday after former President Donald Trump announced a new wave of tariffs targeting key U.S. trading partners. In contrast, the Canadian dollar, or loonie, weakened as markets reacted to the renewed trade tension and its implications for North American economic growth.

The greenback strengthened against a basket of major currencies, while USD/CAD rose by 0.4%, crossing the 1.3700 level. The tariff announcement added pressure to commodity-linked currencies like the loonie, which are highly sensitive to shifts in global trade policy. Reuters

Tariff Shock Rekindles Trade War Fears

Trump’s proposed tariffs—reportedly set to target a broad range of imports from countries including China, Mexico, and Canada—have reignited concerns about a potential resurgence of trade wars. The move, positioned as a measure to protect American industries, has unsettled markets that had largely priced in a more stable trade environment. Global Banking &Finance Review

Investors worry that the tariffs could dampen economic momentum and weigh on global supply chains. With Canada’s economy heavily reliant on exports, particularly to the U.S., the loonie came under immediate pressure following the announcement.

Market participants now await more details on the size and scope of the tariffs, as well as any potential retaliatory measures from impacted nations. Until greater clarity emerges, risk sentiment is likely to remain fragile.

U.S. Dollar Strength Driven by Safe-Haven Demand

The U.S. dollar benefited from safe-haven flows as traders sought refuge from renewed geopolitical and trade-related risks. Treasury yields held firm, and demand for the greenback picked up amid a flight to quality. The Economic Times

While the Federal Reserve has yet to confirm any near-term policy changes, ongoing strength in U.S. economic indicators and labor data continues to support the dollar. The tariff announcement has only added to the dollar’s appeal as a defensive asset.

Outlook: Volatility Ahead for Currency Markets

With trade tensions back in focus, analysts warn of heightened volatility in FX markets. Currency traders are bracing for swings as new developments unfold in U.S. trade policy and central bank communication.

For the Canadian dollar, near-term direction will likely hinge on commodity performance—especially oil—and the Bank of Canada’s policy response. Meanwhile, the dollar could continue to outperform if global uncertainty persists.

 

 

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