In recent days, the Canadian dollar has reached a two‑month high versus the US dollar, driven by growing investor skepticism over the possibility of harsher trade tariffs as originally announced by former US President Donald Trump. The latest developments suggest that the outlook for trade measures might be less aggressive than previously feared, contributing to a stable uptick in the Canadian currency.

Exchange Rate Dynamics

The Canadian dollar recorded a modest increase to 1.4170 USD (approximately 70.57 US cents) per US dollar—its highest intraday level since December 12, when it touched 1.4152. Over the past week, the currency appreciated by 0.9%, marking its second consecutive weekly gain. This stable recovery underscores reinvigorated market sentiment in response to evolving trade policies.

Factors Driving Canadian Dollar Growth

Analyses indicate that several factors have contributed to this positive trend:

1. Investor Skepticism regarding Trade Tariffs. The directive signed by former President Trump does not impose new tariffs immediately but initiates a process that could extend over weeks or months. This uncertainty has dampened fears of sudden, severe measures.

2. Stabilization in Trade Relations. The decision to postpone a 25% tariff on imports from Mexico and Canada until March 4 has helped to restore confidence within trade markets.

3. US Economic Data Impact. Weaker-than-expected retail sales data from the US have contributed to a decline in the US dollar, indirectly bolstering the performance of the Canadian dollar.

Key Economic Indicators

Recent Canadian economic data have presented a mixed picture. On one hand, business sales rose by 0.3% in December compared to November. This growth was largely driven by increased demand for petroleum products, coal, and food products. On the other hand, wholesale trade contracted by 0.2%, reflecting short‑term market fluctuations and challenges in the B2B segment.

Main Shifts in Economic Activity  

  • Business sales growth indicates rising demand in specific sectors.  

  • The dip in wholesale trade suggests temporary market volatility and uncertainty within certain segments.

Analyst Forecasts

Experts contend that the relative moderation in trade policy measures, combined with deteriorating US retail data, will likely continue to support the Canadian dollar. Key projections include:

1. In the short term, further aggressive tariff measures are unlikely.  

2. Continued weakness in US economic figures may keep the US dollar subdued.  

3. Renewed market confidence across various asset classes, including forex and commodities.

Conclusion

The current dynamics in the exchange rate reveal that both US trade policy shifts and domestic economic indicators are having immediate impacts on the forex market. The sustained recovery of the Canadian dollar signals a cautious yet optimistic market outlook. While the analysis primarily focuses on macroeconomic developments and trade relations, it is worth noting the influence of key financial instruments such as the US Dollar Index, which continues to be an important gauge on the performance of the US dollar.