A Canadian one-dollar coin, known as the "Loonie," is shown in this illustration taken in Toronto. (Reuters)
The Canadian dollar strengthened against the U.S. dollar on Tuesday, boosted by higher oil prices and skepticism about the United States' commitment to imposing new tariffs. Despite recent tariff threats, investors appear unconvinced that the proposed measures will take effect, fuelling confidence in the loonie.
The Canadian dollar gained 0.2%, reaching 1.4285 per U.S. dollar, or 70.00 U.S. cents. It fluctuated between 1.4280 and 1.4345 throughout the day.
Uncertainty Over Tariffs
On Monday, U.S. President Donald Trump signed proclamations imposing tariffs on steel and aluminum imports, key exports for Canada. However, these tariffs are set to take effect only on March 12, leaving room for negotiations and potential changes.
Market analysts suggest that Trump's tariff threats are more of a bargaining tactic than an economic policy. "Trump's tariffs increasingly look like negotiating tools rather than economic tools," said Adam Button, chief currency analyst at ForexLive. "The market is not convinced that any tariffs are coming. That's the trade right now."
Last week, Trump postponed steep tariffs on Mexico and Canada for 30 days in exchange for agreements on border security and crime enforcement. This move has led investors to believe that future tariff implementations may also be flexible.
Oil Prices Boost the Loonie
Oil, a major Canadian export, continued its upward trend for the third consecutive day, contributing to the loonie's strength. Sanctions on Russia and Iran raised concerns over global oil supplies, pushing crude prices higher.
U.S. crude oil futures increased by 1.4%, settling at $73.32 per barrel. Additionally, the U.S. dollar weakened against a basket of major currencies, adding to the loonie's momentum.
During a congressional appearance, U.S. Federal Reserve Chair Jerome Powell refrained from commenting on tariffs, adding to the uncertainty surrounding the proposed trade measures.
Economic Growth Signals
Adding to the Canadian dollar’s strength, the value of building permits in Canada surged by 11.0% in December compared to November. The increase was mainly driven by a rise in multi-unit construction projects. Year-over-year, building permits saw a 34.9% jump, indicating steady growth in the construction sector.
Meanwhile, Canadian government bond yields also climbed. The 10-year bond yield increased by 3.8 basis points to 3.102%, marking its highest level since February 4.
