The Canadian Dollar (CAD) is little changed overnight after slipping in late trade yesterday after PM Trudeau said Canada would retaliate in the event of new tariffs being imposed on Canadian exports under President-elect Trump’s administration, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

Broader trend dynamics remain USD-bullish

“Ottawa was still looking at how to respond, he said. An aggravated trade relationship with the US is not what Canada needs or wants but it has little choice but to respond to new tariffs. During the first Trump term, Canada stuck tariffs on products from Republican-controlled districts to put optimal pressure on the White House. Similar tactics may be deployed in the future. Swaps are pricing in around 47bps of easing for the BoC tomorrow.”

“The USD edged slightly higher to trade briefly around 1.4195 in overnight trade before easing back modestly. The CAD’s broader undertone remains weak but short term price action does indicate a minor bear reversal (outside range) formed around the USD’s minor new cycle high earlier.”

“Scope for CAD gains is likely limited, however, as broader trend dynamics remain USD-bullish. USD/CAD support should be firm in the 1.4125/35 range.”