Canadian dollar climbs to 4-month high after tariff reveal

The Canadian dollar rose to a near four-month high against its US counterpart on Thursday as Canada avoided fresh tariffs on its goods in a widening trade war that has led to investors ditching the American currency.

The loonie was trading 1% higher at 1.4090 per US dollar, or 70.97 US cents, after touching its strongest intraday level since 6 December at 1.4028.

Wall Street tumbled after US President Donald Trump said he would impose a 10% baseline tariff on all imports to the United States and higher targeted duties on some of the country's biggest trading partners.

Goods from Canada and Mexico that comply with the USMCA trade agreement between the three countries will largely remain exempt from tariffs, except for auto exports and steel and aluminum which fall under separate tariff policies.

"We saw the initial reaction yesterday after the reciprocal tariff announcement - markets seemed to be celebrating the fact that there weren't any more tariffs on Canada," said Erik Bregar, director, FX & precious metals risk management at Silver Gold Bull.

"But overnight we've seen a collapse for the broader US dollar."

The US dollar (.DXY) posted sharp declines against a basket of major currencies as investors moved to price in four interest rate cuts this year from the Federal Reserve, up from three before the tariff announcement.

In contrast, investors have reduced bets on the Bank of Canada continuing its interest rate cutting campaign this month.

"I just don't think today is the day to be a hero and try to fade this," Bregar said. "This is a move where people are getting out and could continue maybe for another day or two."

Canadian bond yields were mixed across a steeper curve.

The 10-year yield was up 1.3 basis points at 2.937%, while the gap between it and the US equivalent narrowed by 16.5 basis points to 110.5 basis points in favor of the US note, the smallest since 5 December.