Loonie Surges as Inflation Accelerates Amid US Tariff Uncertainty

The Canadian dollar reached its highest value in two weeks on Monday as inflation data showed a faster-than-expected rise. The loonie traded at 1.3850 per U.S. dollar, or 72.20 U.S. cents, marking its strongest intraday level since June 1.

Canada's annual inflation rate accelerated to 3% in July, surpassing the expected 2.9%. The core inflation measures, CPI-trim and CPI-median, were lower at 1.9% and 2%, respectively.

Nathan Janzen and Abbey Xu, economists at Royal Bank of Canada, said that while the inflation report remains consistent with a favorable economic growth outlook, the approaching U.S. tariff deadline adds uncertainty. They noted that the proposed tariffs would have significant consequences for some affected industries and regions, but their narrow coverage makes them unlikely to derail the broader recovery.

Canada's 10-year bond yield has increased by about 17 basis points over the past month, making it the largest increase among G7 sovereign bonds except for Japan. The U.S. is set to impose 50% tariffs on nearly $20 billion of Canadian goods starting August 19, covering around 5.2% of Canada's exports to the U.S.