The Canadian dollar weakened to its lowest level in nine days, trading near C$1.3900 per U.S. dollar on Friday, as trade tensions with the United States and expectations of tighter U.S. monetary policy kept the loonie under pressure.
The currency touched C$1.3908 at its weakest point, extending a decline that marked its steepest weekly drop in more than two months. The U.S. dollar index rose about 0.6% to 99.69, its highest since mid-August, reflecting broad strength in the greenback.
Escalating trade disputes between Canada and the U.S. contributed to the loonie's decline. New U.S. tariffs and retaliatory measures from Canada, following the breakdown of trade talks last week, weighed on sentiment. The dispute has overshadowed Canada's stronger-than-expected second-quarter economic growth, which expanded at a 3.3% annualized pace—above the Bank of Canada's prior forecast of 2.5% and the strongest since 2023.
Federal Reserve Chair Kevin Warsh reinforced expectations for tighter policy, stating that the central bank would need to do more if inflation fails to show sustained progress toward its 2% target. His remarks at the Jackson Hole economic symposium boosted the probability of a 25-basis-point rate hike in September to 57.5%, up from 35% previously.
Despite robust GDP data, the loonie found little support, as markets focused on the potential economic impact of tariffs. A Reuters poll of 35 economists projects the Bank of Canada to hold its overnight rate at 2.25% at its September 2 meeting and maintain that stance through at least the third quarter of 2027.
The Australian dollar, meanwhile, strengthened to a five-year high of C$0.9979 against the Canadian dollar, reflecting divergent currency trends amid shifting global trade and monetary policy dynamics.
