The Canadian dollar (CAD) could plummet to an all-time low of 1.70 against the US dollar (USD) if the United States imposes a 25% tariff on Canadian goods, according to Wells Fargo strategist Erik Nelson. However, Nelson emphasized that the likelihood of such drastic tariffs being implemented remains low.
On Wednesday, January 29, 2025, the USD/CAD exchange rate rose by 0.5% to 1.4466, reflecting market uncertainty amid ongoing trade tensions. Nelson explained that while a 25% permanent tariff could theoretically push the exchange rate toward 1.70, the market is not pricing in such a scenario due to skepticism about the tariffs’ longevity.
“The minimal risk premium in the USD/CAD pair suggests that investors view these potential tariffs as a negotiation tactic rather than a long-term policy,” Nelson said. He added that few believe the tariffs would remain in place for more than a few days, which is why the currency pair has not seen more significant movement.
Nelson noted that while the market does account for some risk of US tariffs on Canada, the current pricing reflects a relatively low level of concern. The strategist’s comments come amid heightened trade tensions between the two nations, though both sides have historically resolved disputes through negotiation.
- Potential Impact: A 25% US tariff on Canada could drive the USD/CAD exchange rate to a record low of 1.70.
- Current Rate: USD/CAD rose 0.5% to 1.4466 on Wednesday.
- Market Sentiment: Investors view potential tariffs as a short-term negotiation tactic rather than a lasting policy.
- Unlikelihood: Wells Fargo considers the imposition of such tariffs highly improbable.
The situation underscores the sensitivity of the Canadian dollar to US trade policies, with the currency often serving as a barometer for cross-border economic relations. Analysts will continue to monitor developments as both nations navigate the complexities of their trade relationship.