The Canadian dollar has depreciated more than the Mexican peso since Donald Trump’s inauguration, falling 0.5% compared to a 3.5% gain for the peso. Analysts attribute this to Mexico’s ability to negotiate more effectively with the U.S. than Canada, leaving the loonie vulnerable. Mark Carney’s election as Liberal leader compounds concerns for the Canadian dollar’s stability moving forward.
The Canadian dollar is experiencing greater depreciation compared to the Mexican peso amid ongoing tariffs despite both countries facing similar challenges. Since Donald Trump’s inauguration, the Canadian dollar has fallen by 0.5% against the U.S. dollar, while the peso has appreciated by 3.5%. In the context of 16 major currencies, the loonie ranks near the bottom in performance, indicating a significant divergence in the economic impacts on both currencies.
Analysts attribute the peso’s relative strength to Mexico’s ability to negotiate with the United States. Nick Rees from Monex Europe Ltd. emphasized that “the Canadian economy is more exposed to tariff extortion,” which makes the loonie more vulnerable than the peso. Mark Carney’s recent election as the leader of the Liberal Party also poses challenges, as he has expressed a commitment to maintaining retaliatory tariffs against the U.S. until Canada secures “respect” from the Trump administration.
In contrast, Mexican President Claudia Sheinbaum has opted for a more restrained approach to the tariff situation. U.S. Commerce Secretary Howard Lutnick has acknowledged the differing responses from Canada and Mexico. Analysts noted that Mexico has achieved more open communication with U.S. authorities, facilitating smoother negotiations and potentially leading to favorable tariff arrangements for Mexico.
JPMorgan Chase & Co. suggests that Mexico may negotiate exemptions or reductions on tariffs, particularly in the automotive sector. Mexico’s existing light VAT on goods can also offer leverage in these negotiations. Moreover, they note that Mexico has the chance to appease the U.S. by reducing imports from China, particularly in manufacturing sectors.
Derek Holt from the Bank of Nova Scotia highlighted that the peso has already faced significant devaluation, scoring a 17% decline since last year, while the Canadian dollar has only dropped by 6%. However, current tariff threats from Trump have been seen as more severe towards Canada, leading to increased market uncertainty surrounding the Canadian dollar. CIBC Capital Markets noted that the Bank of Canada might proceed to lower interest rates due to potential economic declining sentiment, affecting currency stability.
In summary, the Canadian dollar is struggling more than the Mexican peso amidst tariff disputes, with analysts suggesting that Canada faces greater economic exposure and instability. Mexico’s strategic negotiations and established communication with the U.S. government have benefited its currency amidst similar circumstances. The differing responses from both nations highlight the complex relationship influenced by tariffs, negotiations, and economic strategies as both countries navigate through these challenges.
Original Source: financialpost.com
