While Loonie (Canadian Dollar) is experiencing a significant increase against its southern counterpart (USD), it also violates the traditional “safe haven” currency.
As global investors seek asylum from the turbulence emitted by U.S. financial markets, this is caused by President Donald Trump’s aggressive tariff policies, the Canadian dollar and many of its peers benefit from planes away from green.
The dollar index measures the strength of the dollar with a basket of major currencies including Loonie, and this year’s trend has dropped by 9%, highlighting the trend.
But a closer inspection reveals a different story. This month alone, the Canadian dollar depreciated against the Swiss franc by 4.4%, while the yen was 2.3%.
This poor performance against these classic haven currencies suggests a slight investor sentiment that despite Loonie’s breach of the dollar, it was not considered a major shelter during aggravated global economic fears. These currencies are often associated with countries with reliable legal frameworks and institutions, diverse economies, large net international investment status (with more global assets at home), and their status as net lenders to the global financial system.
“Canada meets the first two requirements: it is highly respected and considered a safe place to invest,” Shamota noted.
“However, it relies heavily on the export demand of the U.S. economy, the trend of operating trade deficits, and its relatively small net creditor status in international financial markets, which separates it from a true safe haven.”
The launch of Trump’s “Liberation Day” (the unveiling of his reciprocal tariff plan) is a starting point for investors seeking safer ports.
According to Kyle Chapman, a money market analyst at Ballinger Group, the main beneficiaries of this “tariff threat” are the Swiss francs, the yen, and surprisingly the euro.
Although the Swiss franc and yen have traditionally attracted capital during volatility, the euro is also the preferred alternative to the politically troubled dollar.
Nick Rees, head of macro research at Monex Europe Ltd., highlights the euro as the “main recipient of safe haven traffic” that usually flows into the US dollar. The Canadian dollar also fell 2% on the euro this month.
Interestingly, the Canadian dollar has shown resilience to the wider currencies, which is in contrast to 21 currencies, from Poland’s Zloty and South Korea to the Brazilian Royal and Colombian Peso, and produced an impressive 6.2% against the Colombian currency in April.
Rees described this loonie power as “unusual”, defiing typical correlations with risk sentiment, stocks and oil prices, all showing a decline this month.
The S&P/TSX composite index fell 3.9% in April, while West Texas Intermediate crude oil prices fell 6.1%.
Rees attributes the Canadian dollar’s “superior performance” to this wider basket to reduce U.S. immediate tariff risks.
Although Canada avoids reciprocity tariffs, it continues to compete with existing steel, aluminum and non-US parts of completed vehicles.
“But we also see Canada as a replacement for the value of the United States, allowing investors to maintain exposure to North American growth while keeping it more insulated from Trump’s specific risks,” Rees said.
Going forward, the final trajectory of the Canadian dollar remains intertwined with the unpredictable nature of U.S. economic policy and its global consequences.
“If the U.S. problem worsens into the global economic or financial disaster we face, investors will quickly return to the old way, and green will be inherently limited by the Canadian dollar’s safe haven status in a real global crisis,” Schamotta warned.
