Loonie Weakens as Trade Tensions Escalate with US Tariffs

The Canadian dollar weakened against the US dollar on Monday due to trade tensions between the two nations. The loonie was trading at around 72.49 US cents, down roughly 0.2% on the day. This decline follows Washington's imposition of sweeping 50% tariffs on about $20 billion of Canadian exports and the collapse of trade talks over the weekend.

Canada has pledged to match Washington's measures dollar for dollar with retaliatory levies targeting US steel, dairy, appliances, agricultural equipment, pulp and paper, and electronics. These measures are set to take effect on September 8.

The introduction of these tariffs is a significant concern for Canadian exporters, including winemakers, dairy farmers, furniture manufacturers, and hockey equipment suppliers. Higher crude prices offer some partial support to the loonie, as Canada's status as a major oil exporter tends to boost the currency even when political headwinds are building.

Analysts at City Index noted that the daily RSI on USD/CAD had entered oversold territory for the first time since January before Monday's bounce. However, this recovery is partly attributed to technical factors rather than a fundamental re-rating of the pair.