Economic Outlook and Summary
As the month progressed, Trump’s tariff threat level ratcheted higher and then came to a head on January 20, just after he was sworn in as the 47th President. He mused that he was thinking of imposing 25% tariffs on Canada and Mexico and 10% tariffs on China.
Those musings became reality on February 1, when Trump signed an executive order justifying the decision under national security.
The USD and Federal Reserve
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The Fed was essentially a spectator in January. The minutes from the January 8 FOMC meeting were released, but they did not offer any fresh insight. Policymakers were cautious, and although they didn’t say anything about tariffs outright, committee members mentioned upside risks to inflation and hinted that the current interest rate level was significantly closer to its neutral value than when they started easing last September. The US dollar index declined until Trump’s inauguration, then rallied steadily. It spiked to 109.80 from 107.75 on the heels of news that Canada, Mexico, and China tariffs would begin February 4.
The Canadian Dollar and Bank of Canada
It has not been a very good year for the Canadian dollar. It left the Loonie bouncing erratically in a USDCAD range of 1.4260-1.4510. The top was blown off at the start of February after Trump signed the executive order to impose tariffs on Canada. USDCAD exploded higher, reaching 1.4795, then dropped to 1.4550 on hopes that the tariffs were just a negotiating ploy. Those hopes were stoked on February 3 after Trump announced a delay to the imposition of Mexican tariffs until March 1.
Trump spoke to Trudeau on February 3 and plans another chat in the afternoon.
If Canada gets a reprieve until March, USDCAD will likely trade in a 1.4350-1.4700 range. If not, 1.5000 may become a reality.
Oil Prices
The oil market continued to churn due to supply and demand dynamics. Trump’s tariff threats on energy imports, combined with OPEC’s decision to stick to its plan to unwind production cuts, limited gains. The outlook for February will be determined by the U.S. and its tariff plans.
Forecast Table
| Bank | 2025-USD/CAD Q2 | 2025-USD/CAD Q3 |
| Scotiabank | 1.43 | 1.45 |
| Bank of Montreal | 1.44 | 1.42 |
| CIBC | 1.46 | 1.43 |
| TD Bank | 1.45 | 1.45 |
| National Bank | 1.45 | 1.42 |
Forecast Table is for mid-market rates, and subject to change anytime.
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