Synopsis:

HSBC warns that hope is a dangerous thing for CAD bulls, as optimism over avoiding US tariffs may be misplaced. While Canada secured a temporary delay in tariffs (now set for March 4), the risk remains high that they will ultimately be imposed, which would drive further CAD weakness. HSBC now targets USD/CAD at 1.60 by year-end, assuming tariffs go into effect. If a lasting deal is struck, USD/CAD could instead finish 2025 at 1.45.

Key Points:

US-Canada Trade Relations Remain Uncertain

• Trump postponed 25% tariffs on Canadian imports and 10% on energy until March 4.
• Canada agreed to bolster border security as part of last-minute negotiations.
• CAD rallied on hopes of a more permanent resolution.

Why CAD Bulls Are in Danger

• If tariffs are imposed, CAD will face renewed selling pressure.
• The current CAD rally is based on hope, creating asymmetrical downside risks.
• Markets may have underestimated Trump’s commitment to tariffs, leading to false optimism.

USD/CAD Target Scenarios

• If tariffs are imposed: USD/CAD rises to 1.60 by year-end.
• If a lasting deal is struck: USD/CAD remains lower, ending the year at 1.45.

Conclusion:

HSBC sees asymmetrical risks for CAD—if tariff hopes fade, CAD could weaken sharply. USD/CAD at 1.60 remains their base case, while 1.45 is the best case for CAD bulls if a permanent trade resolution emerges. For now, the risk-reward skews in favor of CAD bears.