The potential exclusion of oil from upcoming US tariffs could significantly alter the trade dynamics between the US and Canada, according to recent market analyses. President Trump's anticipated decision on whether to exempt energy products from new duties is expected to mitigate the adverse effects of tariffs, particularly benefiting Canada. This move could stabilize the USD/CAD exchange rate by reducing the expected tariff burden, which had previously peaked at around 10.7% in tariff discount models. The exclusion of oil would preserve energy trade flows, thereby reducing currency volatility and alleviating future trade concerns.
The broader implications of this decision suggest that while tariffs on non-oil sectors might still negatively impact the US economy, the exclusion of oil could blunt these effects. This is particularly relevant given that the ex-oil trade balance shows a US surplus, whereas oil trade is more balanced. Consequently, the diversification of impacted goods could lead to less drastic forex volatility between USD/CAD compared to USD/MXN, reflecting varying trade dependencies and sector sensitivities.
As of 16:13 on January 30, the price of crude oil (CL1) stands at $73.09, slightly up from its last close of $72.62. The market's response reflects the potential for reduced trade tensions and stabilized energy trade flows, with intraday prices reaching a high of $73.84.