Canadian Dollar Rally Hit by Escalating Trade War with US
The Canadian dollar's recent rally is showing signs of weakness as tensions between Canada and the US continue to escalate. The Bank of Canada, which has kept its overnight rate unchanged at 2.25%, seems poised to raise it in the face of growing inflation concerns.
Canada's GDP growth accelerated to 3.3% in the second quarter, driven by a surge in exports. However, this growth is also putting pressure on the central bank to tighten monetary policy. The Bank of Canada governor, Tiff Macklem, has expressed concerns about inflation and its impact on the economy.
The trade war between Canada and the US shows no signs of abating, with both countries imposing tariffs on each other's goods. This uncertainty is weighing heavily on the Canadian dollar, which has been rising against the US dollar in recent weeks. Markets are now pricing in at least one rate hike by the end of 2026 and as many as three by June 2027.