Canadian Dollar: Recovery against US Dollar faces tariff risks – Commerzbank

Michael Pfister of Commerzbank points out positive indicators in the Canadian economy, including a robust labor market and strong economic growth, as signs of real recovery. However, he cautions that this progress is fragile due to potential US tariffs. Pfister anticipates a possible extension to the US-Mexico-Canada Agreement (USMCA), but remains cautious, acknowledging that US trade policy could impede the Canadian dollar's appreciation.

The Canadian labor market delivered a surprise with 75,000 new jobs created, much higher than the forecasted 20,000, leading to the unemployment rate dropping to 6.4%, the lowest in two years. Despite these improvements, the recovery is precarious as the US president has threatened 50% tariffs on certain Canadian goods if no agreement is reached by August 19th.

While Pfister remains optimistic about a one-year extension of USMCA, he emphasizes that Canada's diversification away from the US will be a gradual process, with potential setbacks from US policy.