07:53 AM EST, 02/10/2025 (MT Newswires) -- Last week felt like the longest one ever for Canadians, said TD.

Many economists that weekend were sorting out the impact of United States President Donald Trump's tariffs and what they would mean for an economy that has been on weak footing for the last two years, note the bank. Then the reprieve of a 30-day delay came on Monday, creating a whipsaw effect in Canadian financial markets.

Economic data last week was also headline-grabbing, stated TD. Trade data showed that Canada's export dependence on the U.S. increased through the end of last year, while employment growth gave a glimpse of what could have been/may still be a solid growth trajectory for 2025.

President Trump kept most Canadians glued to their TVs/socials on Saturday, announcing a 25% tariff on Canadian exports (10% on energy) to take effect on Feb. 1. With Canadian retaliation announced, financial markets went into panic on Monday. Government of Canada yields collapsed by nearly 20 bps and the Canadian dollar (CAD or loonie) reached a low of 67.5 U.S. cents.

Although President Trump postponed tariffs, Monday's reaction gave everyone a view into what could be in store for Canadian markets should a trade war come to pass. In the meantime, yields have recovered their lost ground, while the Canadian dollar is hovering close to 70 U.S. cents.

Canadian trade data came in quite positive in December as firms appear to be front-running tariffs. Exports for Q4 2024 are tracking double-digit growth, a big rebound from the negative growth seen over much of last year. High demand for energy and metals from the U.S. led the gain, as the trade surplus with the U.S. clocked in at over $100 billion for the year.

This overall figure could be used as fodder for President Trump to validate his claims that trade with Canada is 'unfair', even though the trade surplus would become a deficit when energy is excluded, pointed out the bank.

In any other week, Friday's labor market report (LFS) would have been the focus, added TD. But trade risks have bumped it to runner-up. Yet, the jobs market continues to hum along.

Friday's gain of 76,000 net new jobs in January marks three straight months of above-trend job growth. Importantly, the unemployment rate dipped to 6.6%, as population growth ebbs. While the labor market has been a pillar of strength for the Canadian economy, the outlook has become "precarious."

The bank has been expecting the unemployment rate to decline over this year, but its tariff scenario analysis shows that it could quickly rise to 7%, if not higher, should tensions persist.

Canada has entered a period of great "uncertainty," according to TD. Tariff threats have cast a shadow over the economic outlook. Market pricing for the Bank of Canada has started to move towards a greater likelihood of another cut come March.

The BoC has highlighted the growing downside risks, perhaps signaling a greater willingness to take out more insurance should risks become a reality.