Canadian Dollar Hits Eight-Week Low as Tariff Fears Rattle Markets

The Canadian dollar slid to its weakest level in eight weeks on Wednesday, as investors braced for a slower economy and new United States tariffs threatened to squeeze growth through the end of the year.

The loonie was trading 0.3 percent lower at 1.41 per US dollar, or 70.92 US cents, after touching its weakest intraday level since July 29 at 1.4106, according to Reuters.

Currency strategists say markets are preparing for softer conditions in the months ahead. In a note, Karl Schamotta, chief market strategist at Corpay, said investors expect US tariffs to hit targeted sectors, with consumers and businesses likely to pull back on spending and investment.

That caution is showing up in the currency first. The loonie often weakens when trade tensions rise, since Canada sends the bulk of its exports across the US border and its economy is sensitive to shifts in demand from its southern neighbor.

Bank of Canada warns tariffs could drag growth below 1 percent

Bank of Canada Governor Tiff Macklem said on Monday that new US tariffs could cut fourth-quarter growth to below 1 percent, pointing to a fresh wave of uncertainty that threatens investment and hiring.

Macklem's warning lands at a fragile moment. When firms hold off on hiring and expansion plans, the slowdown tends to feed on itself: less hiring means less household spending, which in turn gives companies another reason to wait.

Ottawa is trying to get ahead of that cycle. Last week, Prime Minister Mark Carney announced that Canada will let businesses immediately write off the cost of most new capital investments for tax purposes, a measure meant to make it cheaper for companies to spend on equipment and upgrades.

Schamotta said the government's tax reforms, its courting of investors, and its push to sell more to the European Union should pay off over time, though he expects the effects to be gradual rather than immediate.

A stronger greenback adds to the pressure

The loonie's drop was not only about Canada. The US dollar rose to its highest level in nearly two months against a basket of major currencies as investors priced in a rate hike cycle from the Federal Reserve.

When the US currency strengthens broadly, the loonie usually falls with other major currencies, and this week was no exception.

Oil prices moved higher at the same time. US crude futures were trading 2.2 percent higher at $92.49 a barrel. Oil is one of Canada's major exports, and higher prices normally lend the currency some support, but the tariff concerns outweighed that effect on Wednesday.

Canadian bond yields moved higher across the curve, tracking moves in US Treasuries. The 10-year yield rose 11.2 basis points to 3.942 percent, which sits 115 basis points below its US equivalent. That gap, in favor of the US note, is the largest since June 2025.

What a weaker loonie means day to day

For most Canadians, a sliding dollar shows up at the checkout before anywhere else. Imported groceries, electronics, and clothing get more expensive when the loonie buys fewer US dollars, since suppliers often price in the American currency.

Travel takes a hit too. A dollar worth 70.92 US cents buys less on a trip south of the border or anywhere prices are set in greenbacks, from flights to hotel bills.

There is a flip side for some businesses. Exporters who sell into the US market get paid in dollars that convert back into more loonies, which can soften the blow for manufacturers and resource producers that are not directly caught by the tariffs.

For now, the market's verdict is cautious. Investors are betting that trade uncertainty will weigh on Canada's economy in the coming months, and the currency is pricing in that softness before the economic data confirms it.

What happens next depends largely on trade policy. Until the tariff picture clears, currency desks expect the loonie to stay under pressure, with each new headline about levies or negotiations capable of moving the exchange rate.

Source: Reuters