The peace and quiet was nice, while it lasted. The Canadian dollar is down almost 60 basis points after President Donald Trump said he was ending all trade negotiations with the country, while threatening to impose new tariffs within the next week.

In a post on his Truth Social platform, Trump said, “We have just been informed that Canada, a very difficult Country to TRADE with, including the fact that they have charged our Farmers as much as 400% Tariffs, for years, on Dairy Products, has just announced that they are putting a Digital Services Tax on our American Technology Companies, which is a direct and blatant attack on our Country. They are obviously copying the European Union, which has done the same thing, and is currently under discussion with us, also. Based on this egregious Tax, we are hereby terminating ALL discussions on Trade with Canada, effective immediately. We will let Canada know the Tariff that they will be paying to do business with the United States of America within the next seven day period. Thank you for your attention to this matter!”

We believe he is referring to Canada’s Digital Services Tax, which was enacted last June. Under the tax, firms must pay three percent of digital services revenues earned on Canadian users above $20 million per calendar year, retroactive to 2022. Business groups across Canada and the US have opposed the measure, and speculation about removing it has grown louder in recent months, but to our knowledge, no active steps have been taken toward doing so, with the first payments due on Monday.

We expect the issue to find resolution before the president’s deadline—Canadian Prime Minister Mark Carney is likely amenable to reducing or eliminating an already-unpopular tax—but volatility expectations are again climbing across the currency markets as traders hedge against another round of negative trade headlines ahead of Trump’s July 9 “reciprocal” tariff deadline, and measures of risk appetite are retreating. The Canadian dollar could remain on the defensive through the weekend and into the early part of next week.