The Canadian dollar weakened to an eight-week low on Wednesday, falling to around 1.41 per US dollar after testing an intraday trough of 1.4106, its weakest level since July 29, as broad-based US dollar strength and investor worries about a domestic economic slowdown weighed on the currency.
The greenback rose to a nearly two-month high against a basket of major currencies as traders priced in a rate-hike cycle from the Federal Reserve, adding pressure to the Canadian dollar. Oil prices also climbed, with US crude futures advancing 2.2% to $92.49 a barrel after comments from Iran cast doubt on Middle East peace talks — a typical tailwind for the commodity-linked loonie that was not enough to offset the dollar's advance.
Investors are bracing for new US tariffs to blunt Canada's economic growth. Bank of Canada Governor Tiff Macklem said Monday that the tariffs threaten to hit investment and hiring, lowering fourth-quarter growth projections. Corpay chief market strategist Karl Schamotta said "markets, we think, are bracing for some softness in the economy in the coming months as US tariffs hit targeted sectors, and consumers and firms rein in spending and investment."
Prime Minister Mark Carney unveiled a tax measure last week allowing businesses to immediately write off the cost of most new capital investments, alongside other initiatives aimed at courting investors and boosting exports to the European Union. Schamotta cautioned that those measures "should pay off over time, but the effects will be incremental and slow to arrive."
The bond market reflected growing concern. The 10-year Canadian government bond yield rose 11.2 basis points to 3.942%, near a nearly three-year high of 3.987% touched the previous week. The yield gap relative to the US equivalent widened to about 115 basis points in favor of the American note, the largest differential since June 2025.
The loonie closed at 1.41 per dollar, or 70.92 US cents, down 0.3% on the day.
