The Canadian dollar fell to its weakest level in nine days on Friday, with the loonie trading near C$1.3900 per U.S. dollar, marking a 0.3% decline and the steepest weekly drop in more than two months.
Pressure on the currency intensified as trade talks between Canada and the U.S. collapsed last week, raising concerns over Canadian export growth and the potential for new U.S. tariffs. The breakdown in negotiations followed Canada's own retaliatory measures, adding to uncertainty over the outlook for cross-border commerce.
The U.S. dollar index rose about 0.6% to 99.69, its highest since August 17, as markets reassessed the Federal Reserve's policy path. The probability of a 25-basis-point rate hike at the September meeting climbed to approximately 57.5%, up from 35% previously, according to market pricing. Federal Reserve Chair Kevin Warsh, speaking at the Jackson Hole symposium, did not signal a clear dovish shift despite inflation running above the central bank's 2% target.
Canada's economic data offered limited support for the loonie. The country's gross domestic product expanded at a 3.3% annualized pace in the second quarter, outpacing the Bank of Canada's prior forecast of 2.5% and marking the strongest quarterly growth since 2023. However, the central bank is still expected to hold its benchmark interest rate at 2.25% at the September 2 meeting and maintain that level through at least the third quarter of 2027, according to a Reuters poll of 35 economists.
The Australian dollar strengthened to a more than five-year high against the Canadian dollar, trading at C$0.9979, as investors favored higher-yielding currencies amid shifting global rate expectations.
