Canadian dollar edges lower as trade war with US intensifies
FXC•Canadian dollar eases as trade war offsets firmer oil
The Canadian dollar weakened against its U.S. counterpart on Wednesday as an escalating trade war between the United States and Canada offset higher oil prices, while bond yields climbed.
The loonie was trading 0.2% lower at 1.3805 per U.S. dollar, or 72.44 U.S. cents, giving back much of the previous day's gains. It moved in a range of 1.3767 to 1.3820.
Tariffs, oil prices and rate expectations shape sentiment
- The U.S. banned a broad swath of Canadian alcoholic beverages, motorcycles and dairy products from import on Tuesday. The import bans came after Canada's own retaliatory tariffs on U.S. goods took effect after midnight on Tuesday.
- "Despite firmer crude oil prices, the overhang from the new retaliatory tariffs from the U.S. has dampened short-term CAD sentiment, sending the loonie lower today," said George Davis, chief technical strategist at RBC Capital Markets.
- Canada sends about 70% of its exports to the U.S., including oil.
- Brent crude futures breached $100 a barrel for the first time since July 24 as escalating attacks in the Middle East, including on tankers, stifled hopes of a normalization of oil shipping in the region.
- Elevated oil prices have raised inflation pressures globally, including in Canada.
- Investors have fully discounted a Bank of Canada interest rate hike by December after Governor Tiff Macklem last week said policymakers were prepared to raise borrowing costs multiple times if inflation remained too high.
- U.S. inflation data, due on Friday, could help guide expectations for a Federal Reserve interest rate hike next week.
- Canadian government bond yields moved higher across the curve, tracking moves in U.S. Treasuries. The 10-year was up 3.8 basis points at 3.849%, marking its highest level since May 2024.
