Sell Canadian Dollars: HSBC Strategy Predicts USD/CAD Surge Amid Tariff Risks

HSBC’s FX strategy team advises investors to buy the U.S. dollar against the Canadian dollar (USD/CAD) ahead of potential tariff-related volatility. With the March 4 deadline for U.S. tariffs on Canadian imports approaching, analysts foresee a significant market shift.

HSBC’s USD/CAD Outlook and Key Drivers

HSBC strategists highlight that the absence of a U.S. dollar premium relative to rate differentials creates a ripe environment for a sharp USD appreciation if trade tensions escalate.

While markets currently anticipate a smooth outcome, HSBC warns that the implementation of broad 25% tariffs on Canada could trigger a significant rally in USD/CAD.

“The Canadian dollar is particularly exposed,” explains HSBC strategist Daragh Maher. “USD/CAD has dropped below levels justified by rate differentials, meaning CAD is currently trading at a premium rather than the USD.”

U.S. Trade Policy and Canadian Dollar Weakness

President Donald Trump has authorized tariffs on imports from Canada, Mexico, and China, initially set for February 4, 2025. However, negotiations led to a 30-day delay, shifting the implementation deadline to March 4, 2025.

Since the postponement, CAD has edged higher, but HSBC’s FX strategists caution that volatility could spike again as the new deadline approaches. A further delay may cause mild USD weakness, yet HSBC sees a higher probability of USD strength should tariffs be enforced.

Economic Indicators to Watch

HSBC highlights several key economic data points that could influence CAD’s trajectory:

• Canadian GDP figures (Feb. 28, 2025) – Market reaction will be crucial.
• Labour market data (March 7, 2025) – Potential impact on Bank of Canada’s monetary policy.
• BoC Rate Decision (March 12, 2025) – Markets currently assign a 42% probability to a 25-basis-point rate cut.

Broader Forex Market Impacts

Beyond Canada, HSBC identifies the euro (EUR) as another currency vulnerable to U.S. trade policies. However, optimism surrounding potential Ukraine peace talks could limit its downside. The British pound (GBP) also faces challenges from weak economic growth and potential fiscal tightening in the UK’s March budget.

HSBC’s USD/CAD Trading Strategy

The USD/CAD pair was last observed trading around 1.4228, aligning with HSBC’s recommended long position entry point. The bank targets 1.4040, emphasizing that lower global commodity prices and a dovish Bank of Canada stance could accelerate CAD depreciation.

Expert Forecasts and Market Trends

For traders seeking accurate USD/CAD and GBP/CAD forecasts for 2025, HSBC provides a comprehensive consensus outlook, including median, mean, highest, and lowest projections. Request your exclusive copy now.