Canada Dollar Slumps on US Trade Threats, Tariff Fears

The Canadian dollar weakened on Tuesday as trade tensions between Canada and the United States escalated. The loonie, also known as the CAD, traded around C$1.38 per U.S. dollar, down from its recent high near C$1.376.

The decline is attributed to Washington's threat of higher tariffs on Canadian automobiles, parts, and steel. Markets are assessing the potential impact on Canada's export-heavy economy as investors await Ottawa's response.

Royal Bank of Canada economists estimated that the August 22 tariffs directly affect roughly 0.4% of Canada's GDP, covering only about 5% of Canadian exports to the U.S. However, they noted that an auto tariff threat could represent a far larger structural shock to Canadian industry.

The weakening CAD is also due in part to two weak U.S. data prints released on Tuesday: August CB Consumer Confidence came in at 89.4, missing the 90.3 consensus forecast and falling below July's 90.2 reading, while July New Home Sales printed at 607,000 units against a 620,000 forecast.