Trade War Looms: Canadian Dollar Tumbles Amid US-Canada Trade Talks Collapse

Canadian businesses are bracing for economic headwinds as trade talks between Canada and the US have collapsed. The collapse of negotiations has sent shockwaves through the markets, with the Canadian Dollar (CAD) falling 0.5% against the US Dollar (USD). Scotiabank strategists Shaun Osborne and Eric Theoret note that this is the main G10 underperformer.

Ottawa's pledge to respond 'dollar for dollar' to the latest round of US tariffs has raised uncertainty for Canadian businesses. This development suggests a prolonged trade war between the two countries, which would likely intensify economic headwinds for Canadian companies.

The broader USD/CAD downtrend remains intact, but Scotiabank sees scope for short-term USD gains towards the mid/upper 1.39s. While the market reaction to the news has been limited, uncertainty will keep the CAD on the backfoot against the USD in the coming weeks.