Bank of Canada Governor Tiff Macklem warned that new US tariffs could roughly halve fourth-quarter growth to below 1% if they stay in place. He flagged competing pressures on the bank: tariffs threaten growth while oil prices near $100 a barrel risk pushing inflation higher. USD/CAD held support and pushed back toward session highs after the comments.
New US tariffs could roughly halve Canada's fourth-quarter growth to below 1% if they remain in place, Bank of Canada Governor Tiff Macklem said on Monday. The warning points to a fresh wave of uncertainty that threatens to hit investment and hiring.
Tariffs threaten the growth outlook
According to Reuters: "The latest escalation could once again cause businesses to delay investment and hiring decision", Macklem said. Canada's economy had rebounded in the second quarter with annualized growth of 3.3%, as businesses and households adjusted after nearly 18 months of US tariffs.
But a prospective trade deal between the two countries collapsed, and the rift widened with the latest round of tariffs. In July, before those tariffs were unveiled, the Bank of Canada had forecast third-quarter growth of 1.5%.
Oil prices complicate the inflation picture
Canada's annual inflation rate stands at 3%, above the Bank's 2% target. Macklem said it could edge up further if oil prices stay near $100 a barrel.
The Middle East conflict has driven up crude prices and damaged gasoline and diesel capacity, adding to fuel costs. Macklem said there is so far no evidence that higher fuel costs are spreading to other goods or services.
On the interest rate path, he said the bank does not want to raise its policy rate and restrain growth if inflationary pressures stay contained, but nor does it want to be too slow to respond if those pressures become more persistent. Businesses have been reducing their tariff exposure by changing supply chains and sourcing strategies since the trade war began, he added.
USD/CAD holds support after the comments
USD/CAD held support in a swing area between 1.3989 and 1.4003 during the North American session, pushing the pair back toward the day's highs near 1.4023. A move above that level would put traders' focus on the 61.8% retracement target at 1.40502.
Sources: Investinglive, Investing.com
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