Canadian Dollar: Trade conflict weighs on Loonie – Commerzbank

Commerzbank's Michael Pfister has noted the ongoing breakdown in US–Canada trade talks and Canada's planned retaliatory tariffs, which may prolong the trade conflict. He believes that Canada's unwillingness to compromise on US demands could negatively impact Canadian sentiment indicators and hinder the recent recovery in the short term.

However, with mounting political pressure in the US ahead of the mid-term elections, Canada's more assertive negotiating stance might ultimately prove advantageous in the long run. Despite recent volatility in US trade negotiations, both parties have blamed each other for the breakdowns, making it difficult to identify the exact cause.

Canada's Prime Minister announced retaliatory tariffs in response to US tariffs, signaling a willingness to engage in a prolonged conflict, with de-escalation not expected before the mid-term elections. The Canadian government seems to believe that giving in to new demands would only result in an endless cycle of new demands. Consequently, the coming months may repeat a familiar pattern: short-term declines in Canadian sentiment indicators could undermine the recent upturn, potentially benefiting Canada in the long term due to the US President's unpopularity in the country and the approaching mid-term elections.