Canadian Dollar Faces Greater Decline Than Mexican Peso Amid Tariff Threats

The Canadian dollar is declining more sharply than the Mexican peso, down 0.5% since Trump’s inauguration, while the peso has risen 3.5%. Analysts attribute this to Canada being more exposed to tariffs and differing negotiation strategies. Mark Carney’s leadership may intensify the situation, whereas Mexico pursues a careful approach. Upcoming tariff details could impact both currencies further.

The Canadian dollar is experiencing a steeper decline compared to the Mexican peso amid ongoing tariffs introduced by President Donald Trump. Since the inauguration on January 20, the Canadian dollar has fallen by 0.5 percent against the U.S. dollar, while the peso has appreciated by 3.5 percent. Within a comparative basket of 16 major currencies, the loonie ranks second last, surrounded by the Taiwanese dollar and South Korean won, with the peso positioned at eighth place.

Currency analysts have identified multiple factors contributing to the comparatively stable performance of the peso. According to Nick Rees of Monex Europe Ltd., Canada’s economy is more susceptible to the impacts of tariffs. He notes that Mexico can offer concessions to the U.S. which alleviates some market pricing pressures, a maneuver that is more challenging for Canada, thereby increasing the vulnerability of the loonie.

In the political sphere, Mark Carney’s recent appointment as the Liberal Party leader adds to the dynamics. Carney has asserted that Canada will maintain retaliatory tariffs against the U.S. until it receives due respect. Conversely, Mexico’s President Claudia Sheinbaum has refrained from aggressive rhetoric, expressing optimism for a favorable negotiation outcome regarding tariffs.

Recent statements from U.S. Commerce Secretary Howard Lutnick have acknowledged Mexico’s tactful response to tariffs while critiquing Canada’s retaliatory measures. Analysts from JPMorgan Chase have noted that although the current tariff responses of both nations have not yet materially differentiated their export treatments, there is a notable distinction in negotiation approaches, with Mexico facilitating smoother communications with the U.S. administration.

As further tariff details are anticipated on April 2, Mexico appears positioned to negotiate exemptions, particularly concerning the auto sector and VAT exclusions. Analysts predict Mexico may alleviate concerns by limiting imports from China, especially regarding automobiles and electronics.

The Canadian dollar’s recent decline can also be attributed to expectations surrounding the Bank of Canada’s potential interest rate cuts due to increased tariff uncertainty affecting business and consumer sentiment. This comes alongside economic data indicating a significant rise in household net worth across Canada, reaching $17.495 trillion, bolstered by financial asset growth.

The article concludes with an invitation for readers to engage with financial expertise through the publication’s resources, including mortgage insights and personal finance strategies, emphasizing a communal approach to navigating economic uncertainties.

In summary, the Canadian dollar faces more significant depreciation compared to the Mexican peso due to tariff vulnerabilities and domestic economic conditions. The differences in political leadership responses and negotiation strategies underline the challenges Canada faces in maintaining economic stability. Expectations of interest rate adjustments by the Bank of Canada further complicate the currency’s outlook. Despite these hurdles, a notable increase in household net worth signals overall financial resilience in Canada.

Original Source: financialpost.com