Dollar Rebounds Amid US-China Trade Tensions Escalate

The US dollar rebounded on Monday after its biggest weekly decline in nearly a year, as investors weighed in on the effectiveness of a recent intervention by the US Treasury to curb rising bond yields. The greenback rose 0.2% to 99.01, halting last week's 0.9% drop.

The Canadian dollar slid, meanwhile, amid escalating trade tensions between Washington and Ottawa. Discussions over a deal collapsed at the weekend, with new 50% tariffs on $20 billion of Canadian imports coming into effect on Saturday. Ottawa has pledged retaliatory tariffs starting September 8.

U.S. Treasury yields rose last week, driven by inflation jitters due to rising oil prices and concerns over massive debt issued by companies funding artificial intelligence infrastructure spending. The US Department of the Treasury increased repurchases of long-dated government debt to at least $4 billion from $2 billion in a bid to cap yields, but much of that advance was wiped out on Thursday and Friday.

Rising bond yields tend to strengthen the dollar by increasing borrowing costs for consumers and businesses. However, investors are now wary of Washington's ballooning debt, leading them to seek refuge in hard assets such as gold or cryptocurrency, a strategy known as the debasement trade. Indeed, gold and crypto rallied last week amid the dollar's decline.