The Canadian dollar declined against the U.S. dollar on Monday, extending losses from a sharp pullback after the greenback’s advance from mid-August peaks.
The loonie fell about 0.6% to trade near 72.24 U.S. cents, down roughly 0.4% on the day, after approaching its strongest level in more than two months last week. The U.S. dollar strengthened to around C$1.385, while the U.S. Dollar Index rose 0.2% to 98.981. Gold prices climbed 0.9% to $4,643 an ounce, and the EUR/USD pair eased 0.1% to $1.1665. The USD/JPY pair gained 0.1% to 159.13.
The move followed reports that U.S. President Donald Trump threatened to impose 50% tariffs on Canadian automobiles, car parts, and steel, effective January 1, 2027. The proposed measures escalate trade tensions, with Ottawa warning it would respond with dollar-for-dollar retaliatory tariffs targeting U.S. steel, dairy, appliances, agricultural equipment, pulp and paper, and electronics. The retaliatory levies are scheduled to take effect on September 8.
Canada’s economic data provided limited support for the loonie. Second-quarter GDP expanded at a 3.4% annualized pace, while July employment increased by 75,000 jobs. Analysts at City Index noted that the daily Relative Strength Index for USD/CAD had entered oversold territory before Monday’s rebound, suggesting the recent decline may have been overdone.
Karl Schamotta, chief market strategist at Corpay Cross-Border Solutions, attributed the loonie’s mid-August strength to the U.S. Treasury’s bond buyback announcement, which had bolstered demand for the Canadian currency. However, the latest trade rhetoric has overshadowed that momentum.
The proposed tariffs would affect a range of Canadian exporters, including winemakers, dairy farmers, furniture manufacturers, hockey equipment suppliers, and cross-border supply chain companies listed on the Toronto Stock Exchange and NYSE. The dispute marks a significant escalation in trade relations between the two nations, with both sides framing the situation in stark terms.
U.S. President Trump posted on Truth Social that Canada would be treated as a state rather than a partner, while Canadian Prime Minister Mark Carney described the breakdown in negotiations as an attack, telling reporters, "You're at war when you get attacked. We got attacked."
