Canadian Dollar Eyes Q2 Comeback

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Why the next round of tariffs could spark a CAD recovery against European peers.

The Canadian Dollar has been one of the biggest losers from Donald Trump's tariff offensive, but the tide could be about to turn.

The White House's April 02 tariff announcements will be the biggest yet as the U.S. looks to reciprocate the tariffs imposed on its exports by other countries.

However, and crucially, the U.S. will extend this to 'non-trade tariffs' such as Value Added Tax (VAT).

This means many countries, including the UK, that apply this sales tax, are brought into scope for tariffs, allowing CAD to slide out of the limelight.

CAD's 2025 losses have been particularly sizeable against European currencies such as the Euro and British Pound, which have proven relatively insulated from tariffs that have thus far been focussed on Mexico, China and Canada.

If the surprises in the April 02 tariffs relate to European countries, then it stands that their currencies would be most of risk of a post-announcement fall.

An unexpectedly large tariff on the UK because of the inclusion of VAT would surprise a marketplace that thinks Britain is relatively well insulated from U.S. tariffs owing to its balanced goods trade book with the U.S.

"If value-added taxes are counted as reciprocal tariffs, the UK can also face more negative direct impacts," explains Kristina Clifton, FX analyst at Commonwealth Bank.

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Commonwealth Bank thinks the upcoming tariff announcements will prove worse for the UK than Australia and offer "another support AUD/GBP."

A rising Australian Dollar could lift the tide for other commodity currencies, such as the New Zealand and Canadian Dollars.

With much bad news 'in the price' of CAD heading into the second quarter, the law of diminishing returns starts to apply to further weakness: more losses from tariff news become harder to come by.

Indeed, with Canada already saturated in tariffs, how much further can Trump go? This question does not apply to European countries, leaving the Euro and Pound at risk to any surprises from the White House.

We also note with interest that analysts at Citibank and JP Morgan warn Q2 will see the U.S. Dollar rebound, with analysts confirming they think tariffs will be a supportive factor for the USD, even if price action since February has defied that notion.

This also has implications for CAD as it has underperformed alongside USD in 2025; any USD rebound will also bolster the Canadian unit.

Q2 is ripe for a North American currency comeback.