Canadian fixed, variable mortgage rates could tumble in trade war

Five-year Government of Canada bond yields plunged and odds of multiple Bank of Canada rate cuts in the coming months soared as Donald Trump’s tariff war sent financial markets into a tailspin on Tuesday.

The president’s decision to push ahead with huge tariffs against Canada and Mexico sparked a fierce retaliation by the Canadian federal government and a stinging rebuke by Canadian prime minister Justin Trudeau.

Those five-year government bond yields – which lead fixed mortgage rates in Canada – had slid to 2.63% at time of writing, down from about 2.87% in mid-February, while major banks including Royal Bank of Canada (RBC) and Bank of Montreal (BMO) said deeper central bank rate cuts than originally expected were a distinct possibility in the months ahead.

Trudeau accused Trump of targeting a “total collapse” of Canada’s economy to allow the US to take over its northern neighbour as the tariffs and Canadian countermeasures came into effect.

The prime minister said Trump’s moves, which included 25% tariffs on all Canadian goods crossing the border and a 10% levy on Canadian energy, were designed to further the American president’s oft-stated goal of making Canada part of the US.

“What he wants is to see a total collapse of the Canadian economy, because that will make it easier to annex us,” Trudeau said during a televised address on Tuesday afternoon. “That’s never going to happen. We will never be the 51st state, but yeah, he can do damage to the Canadian economy, and he started this morning.

“But he is rapidly going to find out, as American families are going to find out, that it’s going to hurt people on both sides of the border. Americans will lose jobs. Americans will be paying more for groceries, for gas, for cars, for homes.”

Trump, meanwhile, said in Truth Social posts that retaliatory measures on the US by Canada would see reciprocal tariffs rise by the same amount and repeated a false claim that US banks are prohibited from doing business in Canada.

Federal political leaders weigh in on Trump’s tariffs

Federal Conservative Party head and Leader of the Official Opposition Pierre Poilievre pledged Canada would fight back against Trump’s tariffs and “overcome this attack on our economy” while co-deputy leader Melissa Lantsman, speaking at the Mortgage Professionals Canada (MPC) national symposium in Brampton, also addressed the escalating trade crisis.

“We’re about to enter into what can only be described as a tariff war provoked by Donald Trump that will further damage our economy,” Lantsman said, highlighting the lack of business investment in Canada as “particularly alarming” compared with the US.

Lantsman mapped out proposals to grow Canada’s economy including a more business-friendly approach from Ottawa and an end to “excessive overreach and regulation” by government.

Jagmeet Singh, leader of the federal New Democratic Party (NDP), called for Parliament – which was prorogued in January – to be recalled for an emergency session for political leaders to present a united front against Trump’s measures.

Bank of Canada set to act more aggressively as tariffs take hold

RBC chief economist Frances Donald and assistant chief economist Cynthia Leach said the tariffs would likely spur the Bank of Canada into more rate cuts than it initially planned unless the US government decides to reverse its decision.

“Without tariffs, we expected the BoC to gradually cut rates to 2.25%,” they wrote on Tuesday. “Now, we expect that the longer tariffs remain in play, the greater the likelihood that rates fall faster and by a larger magnitude.”

They also highlighted further Trump measures against Canada scheduled to come into play in the weeks ahead: tariffs on steel and aluminum, set to arrive on March 12, and Trump’s threatened reciprocal measures on April 2.

BMO’s chief economist Doug Porter, meanwhile, said the bank now expects BoC decisionmakers to trim the benchmark rate to 2% by July in a series of quarter-point cuts in the next four announcements.

Odds of a recession are also inching upwards. RSM Canada economist Tu Nguyen said price increases, an unemployment jump, and consumer pullback were all likely in the months ahead, according to Bloomberg, while former Bank of Canada governor Stephen Poloz has already emphasized what he sees as the underlying weakness of the Canadian economy.

Uncertainty continued on Tuesday afternoon as Howard Lutnick, Trump’s commerce secretary, suggested the president may consider rolling back some of the measures against Canada and Mexico tomorrow.

Source CMP
By Fergal McAlinden