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CANADA: Analysts On Potential Tariff Implications

CANADA
CanadaBulletMarketsFixed Income BulletsForeign Exchange BulletsNorth America
  • BMO: “For the BoC, a softer growth profile could set policy on a more dovish path, but a weaker currency and some potential inflation impact would likely keep it from deviating much from our current call. That said, if there is a tit-for-tat response on the Canadian side, we get into more of a classic supply shock, which would become more inflationary and peg interest rates higher than the current baseline. As of now, our call sees BoC policy rates falling to 2.5% by September 2025, which is more dovish than current consensus and market expectations. Set against the net risk on the tariff front, we’re comfortable with that call until further action/details emerge.”
  • CIBC: “Perhaps it's wishful thinking on our part, but our expectation is that this particular trade threat will ultimately go away. […] That said, even if this 25% punitive tariff doesn't happen, this won't be the last set of negotiations over trade and tariffs with the new White House team. Trump's willingness to brandish the tariff weapon so quickly, before even getting to his desk in the Oval Office, portends a long road ahead for both Canada and Mexico to preserve what they negotiated during Trump's first term. The uncertainties over future trade access to the US market could represent a significant drag on capital spending in Canada's export industries over the next couple of years, even if Canada and Mexico are able to ward off this immediate tariff threat by taking actions along the border.”
  • Desjardins: “With 2-year [GoC] rates sitting at 3.23%, there’s ample room to decline even in a more optimistic scenario where Canada avoids such punitive tariffs. The BoC won’t incorporate tariff threats until a policy is actually enacted. So we don’t believe this will have much bearing on the upcoming decision, where we continue to expect the central bank will downshift back to a 25 basis point reduction. However, we do have more conviction in our dovish view on the terminal policy rate for Canada now. These aggressive threats will at the least weigh on business investment in Canada as companies grapple with uncertainty about access to the US market. Combined with the upcoming mortgage renewal wall and the slowdown in population growth, we see a 2.00% overnight rate as likely in just over a year’s time.”
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  • BMO: “For the BoC, a softer growth profile could set policy on a more dovish path, but a weaker currency and some potential inflation impact would likely keep it from deviating much from our current call. That said, if there is a tit-for-tat response on the Canadian side, we get into more of a classic supply shock, which would become more inflationary and peg interest rates higher than the current baseline. As of now, our call sees BoC policy rates falling to 2.5% by September 2025, which is more dovish than current consensus and market expectations. Set against the net risk on the tariff front, we’re comfortable with that call until further action/details emerge.”
  • CIBC: “Perhaps it's wishful thinking on our part, but our expectation is that this particular trade threat will ultimately go away. […] That said, even if this 25% punitive tariff doesn't happen, this won't be the last set of negotiations over trade and tariffs with the new White House team. Trump's willingness to brandish the tariff weapon so quickly, before even getting to his desk in the Oval Office, portends a long road ahead for both Canada and Mexico to preserve what they negotiated during Trump's first term. The uncertainties over future trade access to the US market could represent a significant drag on capital spending in Canada's export industries over the next couple of years, even if Canada and Mexico are able to ward off this immediate tariff threat by taking actions along the border.”
  • Desjardins: “With 2-year [GoC] rates sitting at 3.23%, there’s ample room to decline even in a more optimistic scenario where Canada avoids such punitive tariffs. The BoC won’t incorporate tariff threats until a policy is actually enacted. So we don’t believe this will have much bearing on the upcoming decision, where we continue to expect the central bank will downshift back to a 25 basis point reduction. However, we do have more conviction in our dovish view on the terminal policy rate for Canada now. These aggressive threats will at the least weigh on business investment in Canada as companies grapple with uncertainty about access to the US market. Combined with the upcoming mortgage renewal wall and the slowdown in population growth, we see a 2.00% overnight rate as likely in just over a year’s time.”