The news set off a wave of market reactions, sparking a surge in equities, crypto markets and bond yields, which drive fixed mortgage rate pricing in Canada.

For Canadian mortgage holders and homebuyers, the ripple effects were immediate, with some lenders already nudging rates higher. But what does Trump’s win really mean for the Canadian economy—and for those with mortgages?

Trump’s pro-growth policies and tax cut promises are fuelled optimism in the U.S., which is spilling over to Canada.

“Ultimately, a healthy U.S. economy is the single most important factor for Canada, regardless of who is in charge,” noted BMO chief economist Douglas Porter.

Mortgage expert Ryan Sims told Canadian Mortgage Trends that Trump’s presidency will likely “supercharge” the U.S. economy. “Growth and GDP should look to shoot higher without government weighing it down,” he added, suggesting that a more business-friendly climate in the U.S. could fuel economic activity in North America overall.

Sims highlighted the potential downsides: While Trump’s tax cuts may boost growth, they could also balloon U.S. debt—meaning more government bonds hitting the market, which could depress bond prices and raise yields, putting upward pressure on fixed mortgage rates.

On Wednesday, the 10-year Treasury yield surged over 14 basis points to reach 4.43%, marking its highest level since July. Canada’s 5-year Government of Canada bond yield also surged to a three-month high of 3.11%.

“If yields stay here, expect some fixed rate increases,” Sims said. “The BOC and the Fed may be in cutting mode, but that will likely continue to be in stark contrast to fixed rates.”

Some lenders have already made modest rate hikes, adjusting by 5-10 basis points (or 0.05 to 0.10 percentage points) so far.

Upcoming central bank rate decisions will be “interesting”

As markets rally in the wake of Trump’s win, attention now shifts to upcoming central bank decisions.

While further cuts are expected, Sims expressed doubts about the need for more cuts at this point.

“I really don’t think the Fed needs to cut, and now if they do it would be like throwing some jet fuel on a raging inferno,” he said, “There is a lot of optimism today in the US, so I don’t think we need more rate cuts to liven the party up.”  

The consensus for Thursday’s Federal Reserve decision was a quarter-point cut, setting the target range at 4.50%-4.75%. Next is the Bank of Canada‘s final rate decision of the year on December 11, with forecasts calling for a potential 50-bps reduction.

Canadian banks set to benefit

Canadian banks with U.S. operations also stand to benefit from Trump’s policy shifts.

Proposed corporate tax cuts and deregulation are likely to enhance profitability for Canadian banks with substantial U.S. operations, such as Bank of Montreal, Scotiabank and TD Bank, positioning them to gain from a friendlier regulatory environment south of the border.

BMO has a strong U.S. presence through its subsidiary BMO Harris Bank, headquartered in Chicago, while TD Bank operates as “America’s Most Convenient Bank” with branches along the East Coast from Maine to Florida. Scotiabank also holds a notable stake in Cleveland-based KeyCorp.

Meanwhile, RBC has expanded its U.S. reach through its acquisition of City National Bank, serving high-net-worth clients and businesses, and CIBC has established itself with CIBC Bank USA, following its acquisition of Chicago-based PrivateBancorp.

“Bank stocks are flying off the radar today as a DJT administration is viewed as bullish for the banking sector,” Sims noted.

Porter added that a stronger U.S. economy could support more robust cross-border trade and investment flows, indirectly benefiting Canadian banks.

The bad news for Canada

Tariffs loom as one of the most immediate risks for Canada after Trump’s election, with protectionist policies potentially impacting the economy.

Canada “could be one of the hardest hit (along with China and Mexico) from a possible trade tussle,” warned Porter.

“Increased uncertainty about tariffs and the fate of the USMCA ahead of the 2026 review could depress capital flows to Canada and weaken domestic investment, likely extending the nation’s productivity slump,” he continued, adding that this could weigh on an already weak Canadian dollar.

Sims voiced additional concerns, saying Canada’s growth has leaned heavily on rising property prices rather than real productivity gains.

“If Canada doesn’t get its act in gear quickly on an economic front, it will unfortunately bear fruit on my prediction of a flat decade in the coming years,” he noted, pointing to high debt, high rates, and a declining dollar amid a protectionist climate.

Porter also suggested that Canada might need to adjust corporate taxes to retain investment and could face pressure to boost NATO spending, possibly raising the budget deficit.

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Last modified: November 7, 2024