Canada's Trade War with US Puts Loonie Under Pressure

Canada's ongoing trade war with its southern neighbor has put the Canadian dollar under significant pressure. The conflict began on September 8, when Ottawa imposed retaliatory tariffs on $20 billion worth of US imports in response to similar measures introduced by Washington.

The USD/CAD pair surged as a result of the trade tensions, but the Bank of Canada's monetary policy is also playing a crucial role in determining the currency's value. After the central bank's meeting in early September, investors initially expected three rounds of interest rate hikes through June 2027, which would have boosted the US dollar further.

However, the trade war and signs of a cooling labor market have forced investors to reconsider this outlook. The Canadian economy is facing challenges, with a 41,700-job loss in August and slower GDP growth expected due to the conflict.