US-Canada Trade Tensions Threaten Canadian Dollar's Recovery

Renewed trade tensions between the US and Canada threaten to undermine the Canadian Dollar's (CAD) recent recovery, according to OCBC's Sim Moh Siong and Christopher Wong. The collapse of trade talks and subsequent 50% US tariffs on CAD20bn of Canadian imports have sparked uncertainty in the economic outlook. In response, Canada has announced plans to impose dollar-for-dollar retaliation starting from September 8, targeting sectors such as steel, dairy, and electronics.

The breakdown in negotiations adds fresh uncertainty to the future of the USMCA trade deal, which could weigh on Canada's improving economic outlook. Just before the collapse, Canada had been showing signs of rebound, with unemployment falling to a two-year low of 6.4% in July. However, renewed trade tensions may leave the loonie vulnerable after its recent rebound.