The Bank of Canada cut rates due to tariffs; gold hit a new high
The Bank of Canada (BoC) delivered its widely expected rate cut, but this was no ordinary policy move. Unlike past adjustments driven by inflation concerns or economic softness, this was a direct reaction to Trump’s latest round of tariffs. Governor Macklem acknowledged unexpected resilience in Canada’s economy and labour market, implying that without the tariff uncertainty, the bank might have considered holding steady. Instead, the BoC is forced to act defensively, signalling that as long as tariffs remain in place, further cuts are likely. The longer this trade war drags on, the lower rates will likely go to cushion the blow. For the Canadian dollar, stability is tenuous, and any signs of tariff-induced inflation in the U.S. could push the U.S. Federal Reserve (the Fed) to hold rates, increasing downside risks for the loonie. The BoC is navigating between inflation risks and trade shocks, and right now, tariffs are winning the fight.
This week was another ugly one for equities, as Trump’s tariff threats expanded beyond metals and autos. The latest move? A 200% tariff on European alcohol, a direct retaliation against the European Union’s 50% duty on U.S. whisky. Consumer discretionary and communication stocks were hit hardest. Remember when we told you about Meta’s record-setting 20-day winning streak? The selling pressure this week wiped out the entire 2025 gain for the company. The S&P 500 officially entered correction territory, down over 10% from its peak. Dip-buyers remain on the sidelines, as the S&P 500 has now gone 15 straight sessions without back-to-back gains, a level of selling exhaustion not seen in years.
But while stocks crumbled, one asset stood tall: gold. With uncertainty running high and the Fed unlikely to intervene just yet, traders piled into gold, driving it to another record high. As long as policy uncertainty and trade risks dominate, expect the flight to safety to continue.
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