Loonie Slips to One-Week Low as Canada-U.S. Tariff War Weighs

The Canadian dollar weakened to a one-week low against its U.S. counterpart on Wednesday, as fresh tariffs between Ottawa and Washington revived concerns about Canada's economic outlook.

The loonie was trading 0.4% lower at 1.3885 per U.S. dollar, or 72.02 U.S. cents, after touching its weakest intraday level since August 19 at 1.3892.

The latest slide follows the U.S. imposition of new 50% tariffs on $20 billion of Canadian imports on Saturday, after talks between the two countries collapsed. Canada retaliated on Tuesday with tariffs on roughly $20 billion worth of U.S. annual imports and announced support measures for affected businesses and workers.

"The trade dispute has capped the currency's recent recovery by reviving concerns over exports, investment and business confidence," said Kevin Ford, FX & macro strategist at Convera.

The U.S. dollar gained broadly after inflation data slightly raised expectations for a Federal Reserve rate hike, ahead of the Jackson Hole symposium of central bankers this week. Ford noted that a clear hawkish signal from Fed Chair Kevin Warsh could push USD-CAD above 1.39, though Warsh may keep his cautious tone.

Attention now turns to Canada's second-quarter GDP report due Friday. Economists expect the economy grew at an annualized rate of 3.4% in the quarter, following two straight quarterly contractions.

Oil prices, a key Canadian export, edged down as investors monitored Strait of Hormuz talks between Iran and Oman, with U.S. crude futures trading 0.1% lower at $82.27 a barrel.

Canadian government bond yields rebounded across the curve, with the 10-year up 4 basis points at 3.662% after touching an earlier near-two-week low at 3.614%.