Market Analysis by Miro Svoboda, Investment Advisor, Harbourfront Wealth – Sonora Wealth Group
Monday 04, 2025 –
“The Canadian Dollar weakened against the US Dollar as escalating trade tensions with the US spurred volatility into the forex markets, leading investors to flock to safe-haven assets such as the greenback. Over the weekend, President Donald Trump announced a 25% tariff on Canadian and Mexican goods, while China faced a smaller 10% increase. Such measures prompted immediate reactions with Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum vowing to impose retaliatory tariffs on US products. Similarly, China warned of countermeasures to defend its trade interests.
This trade uncertainty compounds challenges for the Loonie, with recent economic data painting a cautious Outlook. Canada’s Manufacturing PMI declined to 51.6 points in January, suggesting a certain fragility in recovery. Production grew, partly driven by pre-emptive export orders ahead of tariff increases. Business expectations dropped to their lowest level since July 2024, as manufacturers hesitated due to rising uncertainty.
Furthermore, Input cost inflation accelerated to a 21-month high, fueled by a stronger US dollar that increased the cost of imported goods. If this inflationary trend persists, the Canadian dollar could come under additional pressure. The Bank of Canada’s recent dovish monetary stance, aimed at supporting growth, may exacerbate inflation, erode purchasing power, weaken investor confidence, and hinder long-term economic growth.
Meanwhile, US economic indicators painted a more optimistic picture for the US dollar. The ISM Manufacturing PMI rose to 50.9, marking the first expansion in 26 months. Following the Federal Reserve’s decision to maintain interest rates and continue monitoring economic data, the dollar’s momentum is expected to strengthen.
Looking forward, the Canadian dollar is anticipated to experience persistent pressure as escalating global trade tensions are expected to weigh on investor sentiment, prompting a more cautious approach and a shift towards safe-haven assets.”
Miro Svoboda, Investment Advisor, Harbourfront Wealth – Sonora Wealth Group