Loonie Hit by Trump’s 100% Tariff Threat; Oil Spikes on Middle East War Drums

Washington/Ottawa — The Canadian Dollar (CAD) came under heavy selling pressure on Monday after US President Donald Trump issued a stern ultimatum to Ottawa, threatening 100% tariffs on Canadian goods if the country finalizes a trade agreement with China.

The threat exacerbates the divergence between North American economies and complicates the Bank of Canada's policy path. Meanwhile, energy markets are pricing in a significant war premium, providing a floor for oil prices but failing to lift the CAD, which remains shackled by trade war fears.

Trade War Reignites

President Trump‘s warning signals a hardline enforcement of the USMCA’s “poison pill” clauses regarding non-market economies. For Canada, which has sought to diversify trade, the ultimatum presents a binary choice: align fully with Washingtons economic containment of Beijing or face a devastating protectionist wall.

“The 100% tariff threat is effectively a blockade of the Canadian export economy,” noted a trade strategist at a major Canadian bank. “The FX market is pricing in a worst-case scenario where US-Canada trade flows are disrupted.”

Oil Markets: The Iran Risk Premium

While the Loonie struggled, crude oil markers (WTI and Brent) surged, with WTI jumping sharply as winter storms disrupted US production and geopolitical risks hit boiling point.

The USS Abraham Lincoln carrier strike group has reportedly altered course to the Middle East, entering striking range of Iran. The White House described the move as “preventative,” mirroring deployments prior to 2024 strikes on nuclear facilities.

• Supply Disruptions: A severe winter storm in Texas has already cut US natural gas production by 10 billion cubic feet and forced refinery closures (ExxonMobil, Celanese).
• War Risk: Irans Revolutionary Guard has gone on high alert. Any closure of the Strait of Hormuz would send oil prices into triple digits, complicating the global inflation picture.

Market Implication

Typically, high oil prices support the Canadian Dollar. However, the severity of the US tariff threat has decoupled this correlation. Investors are currently selling CAD/JPY and CAD/CHF, seeking refuge in currencies detached from the North American trade conflict.