The Canadian dollar could potentially reach an unprecedented low of 1.70 per US dollar if the United States decides to impose a 25% tariff on Canada, said Wells Fargo (NYSE:WFC) strategist Erik Nelson.
He added that the likelihood of such severe tariffs being implemented is highly unlikely.
On Wednesday, the USD/CAD exchange rate saw an increase of 0.5% to 1.4466.
Nelson explained that a rough estimate would suggest the USD/CAD exchange rate could move towards 1.70 if a 25% permanent tariff were to be put into effect.
He questioned why the USD/CAD rate isn't higher if potential currency fluctuations could be this significant. The reason, he noted, is that few people believe these tariffs will be in place for more than a few days.
According to Nelson, the minimal risk pricing in the pair reflects the view that these tariffs are ultimately a negotiation tactic.
Nelson stated that while the market does factor in some risk premium for potential US tariffs on Canada, it is not significant.
