Wells Fargo Analysts (NYSE:) provided insights on the potential impact of U.S. tariffs on Canada and Mexico, forecasting a strengthening of the U.S. dollar as a result. The company predicts that the United States imposing 25% tariffs on its North American trading partners would not only impact the Mexican peso and Canadian dollar, but would also lead to a broad-based strengthening of the U.S. dollar.

Central banks in Canada and Mexico, already in the process of easing monetary policy, may need to adjust their strategies in response to these tariffs. The Bank of Canada (BoC), which previously forecast a final rate of 2.25%, may adopt a more dovish stance to counter economic pressure from potential tariffs and avoid a recession.

Meanwhile, the Central Bank of Mexico (Banxico) is expected to end its monetary easing cycle early to defend the peso against inflation and depreciation.

Analysts argue that the US dollar, the dominant safe-haven currency, is likely to appreciate against a basket of G10 and emerging market currencies amid tariff-induced uncertainty.

This effect would be particularly pronounced against the Canadian dollar and Mexican peso. They predict that the exchange rate could test C$1.5000 in early 2026, with the risk of further depreciation of the Canadian dollar.

In Mexico’s case, this situation could lead to more extreme currency depreciation. Despite Banxico’s potential move to halt the monetary easing cycle, the peso may continue to experience significant sell-offs due to overvaluation and local risks such as rising fiscal deficits and political challenges.

Wells Fargo’s current exchange rate forecast is MXN22.50 by the end of 2025, but it acknowledges that tariff threats could further weaken the Mexican peso.

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