Wells Fargo (NYSE:) analysts presented insights on the potential impact of US tariffs on Canada and Mexico, predicting a stronger US dollar as a result. The company expects that if the United States were to impose a 25% tariff on its North American trading partners, it would not only impact the Mexican peso and the Canadian dollar, but also lead to a broad strengthening of the U.S. dollar.
Central banks in Canada and Mexico, which are already in easing cycles, may have to adjust their strategies in response to these rates. The Bank of Canada (BoC), which previously had a final interest rate forecast of 2.25%, could take a more dovish stance to counter the economic pressure from potential rates and avoid a recession.
Meanwhile, the Central Bank of Mexico (Banxico) is expected to end its easing cycle early to protect the peso from inflation and depreciation.
The analysts say the US dollar, as the dominant safe-haven currency, is likely to appreciate against a basket of G10 and emerging market currencies given tariff-induced uncertainty.
This effect would be especially pronounced against the Canadian dollar and the Mexican peso. They predict that the exchange rate could test CAD1.5000 in early 2026, with risks focusing on further depreciation of the Canadian dollar.
For Mexico, the situation could lead to a more extreme devaluation of the currency. Despite Banxico’s potential move to halt the easing cycle, the peso could still face significant sell-off due to overvaluation and local risks such as a widening budget deficit and political challenges.
Wells Fargo’s current forecast for the exchange rate is MXN22.50 by the end of 2025, but acknowledges that tariff threats could further weaken the Mexican peso.
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