07:45 AM EDT, 03/10/2025 (MT Newswires) -- Canadians' necks are likely sore from following the back-and-forth of last week's United States tariff volleys, said TD.

Beginning last Tuesday, the previously unthinkable happened -- the U.S. implemented 25% tariffs on Canadian and Mexican goods with a 10% tariff on energy. Over the next 72 hours, Canada doubled down on its retaliatory plan, the auto sector was granted a one-month carve-out, and an executive order was signed, pausing tariffs on Canadian and Mexican goods compliant with the United States-Mexico-Canada Free Trade Agreement (USMCA).

Markets didn't love the uncertainty, said the bank. Stocks continued to slide, with the S&P 500 and Canadian benchmark TSX dropping around 2% on the week. Canadian tw- and 10-year government bond yields rose modestly, helped by easing growth concerns, and the Canadian dollar (CAD or loonie) nudged higher, finishing the week at 69.6 cents U.S.

Trade data confirmed that U.S. importers were proactive and stockpiled Canadian goods to get ahead of tariffs. Canada's monthly trade balance with the U.S. widened to over C$14 billion in January, a new historical high. This was driven by a 7.5% month-on-month surge in exports focused in the automotive sector, consumer goods, industrial machinery & equipment and energy products, which are key sectors impacted by tariffs.

What's more, since Donald Trump won the U.S. election in November, nominal exports to the U.S. are up by a "whopping" 22%, the largest three-month gain on record, and by a considerable margin -- excluding the frenetic export recovery in mid-2020, stated TD. In the near term, Canada's economy will benefit from this tariff front-running, with early tracking showing a sizeable contribution from net trade to Q1 gross domestic product growth. The expected broad-based weakness in the Canadian dollar could also buffer exports as trade flows constrict if and when tariffs set in.

Meanwhile, Canada's labor market flatlined in February, with virtually no jobs created in the snowy month. Despite this, the unemployment rate held steady 6.6%, as the labor force contracted for the first time in seven months.

On the margin, Friday's Labour Force Survey (LFS) was a weak report relative to expectations, but the readings were skewed by the intense snowstorms that occurred during the survey's reference week. Almost half a million employees saw a reduction in hours worked because of the weather, pulling nationwide total hours worked lower by 1.3%. This may have a negative impact on February's industry-based GDP readings, but the bank sees a positive kick-back in March.

The Bank of Canada is set to make a highly anticipated interest rate announcement next Wednesday. For several weeks, TD has expected the BoC to deliver a 25bps cut to take out insurance against a trade war escalation, despite the domestic economy running at a decent clip.

Indeed, market pricing is aligned with the bank's call, now predicting a 90% chance of a 25bps rate cut, up from only 30% a couple weeks ago.