Wells Fargo (NYSE:WFC) analysts presented insights on the potential impact of U.S. tariffs on Canada and Mexico, forecasting a stronger U.S. dollar as a result. The firm anticipates that if the United States were to impose a 25% tariff on its North American trade partners, it would not only affect the Mexican peso and Canadian dollar but also lead to a broad strengthening of the U.S. dollar.
Central banks in Canada and Mexico, already in easing cycles, may have to adjust their strategies in response to these tariffs. The Bank of Canada (BoC), which previously had a terminal rate forecast of 2.25%, might adopt a more dovish stance to counteract economic pressures from potential tariffs and avoid recession.
Meanwhile, the Central Bank of Mexico (Banxico) is expected to end its easing cycle early to defend the peso against inflation and depreciation.
The analysts argue that the U.S. dollar, being the dominant safe-haven currency, would likely see appreciation against a basket of G10 and emerging market currencies in the face of tariff-induced uncertainty.
This effect would be particularly pronounced against the Canadian dollar and Mexican peso. They predict the USD/CAD exchange rate could test CAD1.5000 by early 2026, with risks tilted towards further Canadian dollar depreciation.
For Mexico, the situation could lead to more extreme currency depreciation. Despite Banxico’s potential move to halt its easing cycle, the peso may still face significant selloffs due to overvaluation and local risks, such as a widening fiscal deficit and political challenges.
Wells Fargo’s current forecast for the USD/MXN exchange rate is MXN22.50 by the end of 2025, but acknowledges that tariff threats could further weaken the Mexican peso.
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