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Milan Cacic

June 06, 2025

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CANADIAN TRADE TUMBLES AND THE CANADIAN DOLLAR GETS STRONGER? HMM...

Canadian goods headed towards the United States dropped 16% month-over-month. Our trade deficit went to $7.1 billion, the highest level on record. Automobiles and auto parts led the way with a 17% decline, while consumer products (mostly food) dropped 16%. There was also an 8% drop in energy products, however some of this was due to lower oil prices.

 

The question is, why is the Canadian dollar going up when our balance of trade is going negative? The answer probably has two components. The first one is likely Trump's "One, Big, Beautiful Bill". As you can see from the chart below, US debt has grown substantially over the past 15 years and appears to be accelerating. The "One, Big, Beautiful Bill" that the Republicans are trying to pass would actually increase US spending even further by adding an additional $2.4 trillion of debt.

 

An area chart showing historical Federal Debt and the portion owned by foreign and international investors, from 1990 to 2025. The amount of federal debt increases much more sharply than the portion held by foreign investors, especially over the past 15 years.

The other factor that could be pushing the US dollar down and the Canadian dollar up, is the fact that foreign investors now own just over $9 trillion of US federal debt. They are a big player, or should I say were a big player in the debt auctions that take place every month. It's not so much that foreign investors are selling their treasury holdings, they just aren’t buying new ones. This is a problem for the US – demand for their bonds is weakening, making yields rise. Higher yields increase interest payments for the government, which in turn increases the government’s cost of maintaining the debt, which increases deficits. This snowball effect continues until, at some point, the US has to face reality and increase taxes or cut spending. Both are very difficult to do! In the meantime, the Canadian dollar moves up...

A line chart showing the YTD increase in value of CAD/USD. From .689 at the lowest in January to .732 at the highest in June

I have also attached some commentary from our CIBC Economics team entitled “Guns N’ Roses”.

 

As always, if you have any questions, please feel free to give us a call.

 

Have a great weekend.

 

Milan

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CIBC Private Wealth” consists of services provided by CIBC and certain of its subsidiaries through CIBC Private Banking; CIBC Private Investment Counsel, a division of CIBC Asset Management Inc. (“CAM”); CIBC Trust Corporation; and CIBC Wood Gundy, a division of CIBC World Markets Inc. (“WMI”). CIBC Private Banking provides solutions from CIBC Investor Services Inc. (“ISI”), CAM and credit products. CIBC Private Wealth services are available to qualified individuals. Insurance services are only available through CIBC Wood Gundy Financial Services Inc. In Quebec, insurance services are only available through CIBC Wood Gundy Financial Services (Quebec) Inc.


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