CUSMA Uncertainty and Canada’s Interest Rates
If CUSMA Is Not Renewed: Why Canada’s Interest Rates May Stay Higher for longer. Interest rate expectations in Canada are often tied to inflation and employment data. However, a growing macro risk now sits outside traditional economic indicators: trade uncertainty related to the upcoming CUSMA review.
If the United States does not renew CUSMA, the implications for Canada’s economy — and its interest rate outlook — could be significant.
Why CUSMA Matters to Canada’s Economy
CUSMA underpins Canada’s trade relationship with its largest economic partner. It supports:
- More than 75% of Canadian exports
- Manufacturing, automotive, agriculture, and energy supply chains
-
Millions of jobs directly and indirectly tied to cross-border trade
Uncertainty around this agreement introduces risk that central banks cannot ignore.
The Economic Chain Reaction
1. Trade Uncertainty Slows Growth
If CUSMA is not renewed:
- Tariffs could re-emerge under WTO rules
- Supply chains may be disrupted
- Canadian exports become less competitive
- Business investment slows
- Job losses rise in trade-dependent industries
This weakens overall economic growth.
2. A Weaker Canadian Dollar Adds Inflation Pressure
Markets typically react quickly to trade risk:
- Investors reduce exposure to CAD
- USD/CAD rises
-
Imports become more expensive
This creates imported inflation, particularly for fuel, food, and manufactured goods.
3. Inflation Risk Limits Rate Cuts
Under normal conditions, slower growth would justify interest rate cuts.
However, currency-driven inflation limits the Bank of Canada’s flexibility.
The result is a “higher-for-longer” interest rate environment, even in a slowing economy.
Likely Interest Rate Scenarios
| Scenario | Expected Outcome |
|---|---|
| Short-term uncertainty | Rates remain unchanged |
| Prolonged trade dispute | Rate cuts delayed |
| Sharp CAD depreciation | Temporary defensive rate hike possible |
| Severe recession | Rate cuts come later, not immediately |
What this means for Businesses & Households
Businesses
- Borrowing costs remain elevated
- Expansion and capital investment may be delayed
-
Cash-flow planning becomes critical
Homeowners
- Variable mortgage holders face ongoing pressure
-
Fixed mortgage rates decline slowly, if at all
Investors
- Bond yields stay higher
- Currency volatility increases
-
Trade-exposed sectors remain uncertain
Why the Bank of Canada Is Watching Closely
The Bank of Canada has consistently emphasized that trade instability can prevent interest rate relief — even if inflation appears under control.
In other words, interest rates may stay high not because the economy is strong, but because uncertainty is risky.
Strategic Takeaway
If CUSMA is not renewed:
- Canada’s interest rates are unlikely to fall quickly
- Businesses should plan for extended higher borrowing costs
-
Strategic diversification, cost control, and financial planning become essential
At Assentt Intelligence, we help organizations prepare for macroeconomic risk — not just react to headlines.
The information provided is for educational/entertainment purposes only. Actual information may vary, please consult our office for further details. Got a question? Feel free to reach us at helpdesk@assentt.com.
