07:21 AM EST, 12/03/2024 (MT Newswires) -- In November the Canadian dollar (CAD or loonie) weakened against the US dollar (USD) in terms of London closing rates with USD/CAD rising from 1.3933 to 1.4010, noted MUFG.

The Bank of Canada didn't meet in November and so the key policy rate was unchanged at 3.75%, following four cuts in consecutive meetings totaling 125bps.

Like all G10 currencies, the Canadian dollar weakened against the US dollar in November in response to the victory of Donald Trump in the United States presidential election, wrote the bank in a note to clients. Trade tariff policies will be a key driver of foreign exchange over the coming months as markets speculate and

then Trump likely acts quickly after the inauguration on Jan. 20.

This became apparent after Trump announced he would implement a 25% tariff on all imports from Canada and Mexico and 10% on imports from China. Trump's focus was on illegal drugs coming from China via Mexico and Canada and illegal immigrants.

USD/CAD jumped 1.5% in response to Trump's comments and highlighted the potential for trade policy uncertainty to fuel CAD volatility in 2025, stated MUFG. However, CAD remains one of the best-performing G10 currencies since the election and Trump's growth-supportive policies could be to the benefit of Canada as well given the tight interlinkages.

Part of the resilience of CAD reflects some signs of economic recovery, according to the bank. The labor market saw 25,600 new jobs created in October after a huge 112,000 the previous month which helped fuel a pick-up in wage growth.

Retail sales, excluding autos, jumped a hefty 0.9% month over month in September suggesting monetary easing and declining inflation are lifting consumer confidence, pointed out MUFG.

The signaling of Canada for immediate tariffs along with Mexico does point to upside risks for USD/CAD but the bank sees this as part of a negotiating process and still assumes these levels of tariffs couldn't last long and for Canada, at least a deal would be done resulting in USD/CAD declining.