Canadian Dollar Faces Greater Vulnerability Than Mexican Peso Amid Tariff Conflict

The Canadian dollar has weakened significantly compared to the Mexican peso since Donald Trump’s inauguration, depreciating by 0.5% while the peso has gained 3.5%. Analysts indicate that Canada’s economy is more exposed to tariff pressures, while Mexico’s negotiations with the U.S. may provide it with a smoother path amidst the trade conflict. The upcoming discussions regarding tariffs could further influence the performance of both currencies.

The Canadian dollar is proving to be more vulnerable than the Mexican peso amidst ongoing trade tensions with the United States under President Trump’s administration. Since Trump’s inauguration, the Canadian dollar has depreciated by 0.5% against the U.S. dollar, while the Mexican peso has appreciated by 3.5%. Among 16 major currencies, the Canadian dollar sits second to last in performance, indicating substantial pressure compared to the Mexican peso, which ranks eighth.

Currency analysts attribute the peso’s relatively stable performance to Mexico’s ability to negotiate concessions with the U.S., thereby limiting market depreciation. Nick Rees, head of macro research at Monex Europe Ltd., suggests that Canada faces greater economic exposure to tariff pressures, making the Canadian dollar comparatively more susceptible. Furthermore, Mark Carney, newly-elected leader of the Liberal Party and incoming Prime Minister, has pledged that Canada’s retaliatory tariffs will remain until respect is achieved from the U.S.

In contrast, Mexican President Claudia Sheinbaum has sought to negotiate favorable terms without immediate retaliatory measures. Recent commentary from U.S. Commerce Secretary Howard Lutnick underscored the more effective tariff response of Mexico compared to Canada. Analysts from JPMorgan Chase & Co. highlight a smoother communication channel between Mexico and the U.S., suggesting potential future tariff adjustments for Mexico opposed to Canada.

Furthermore, there are expectations of sectoral and reciprocal tariff discussions concluding by early April, documents on which are anticipated as Trump’s period for tariff extensions expires. Analysts express optimism regarding potential negotiations that may favor Mexico, particularly in the automotive sector, if Mexico agrees to curtailed imports from China.

Derek Holt of the Bank of Nova Scotia noted that while Mexico experienced a significant currency adjustment last year, the perceptible pain has been front-loaded. Currently, the Canadian dollar’s depreciation is perceived as a direct consequence of tariff threats being more directly punitive towards Canada. Consequently, market forecasts suggest a possible continuation of rate cuts by the Bank of Canada due to increasing tariff uncertainties affecting business and consumer confidence.

In conclusion, the Canadian dollar has demonstrated remarkable vulnerability compared to the Mexican peso amid ongoing trade tensions with the United States. Factors such as differing economic responses, negotiation dynamics, and potential tariff adjustments contribute to the diverging paths of these two currencies. As Canada adapts to these challenges, the influence of upcoming negotiations and market sentiments will remain pivotal in determining the future strength of the Canadian dollar.

Original Source: financialpost.com