Loonie edges up as Canada retaliates with tariffs on US goods
Canada's dollar inched higher after Ottawa announced retaliatory tariffs on $20 billion in US imports, escalating the trade conflict.
The Canadian dollar clawed back a fraction of Monday's losses on Tuesday, trading 0.1% higher at 1.3835 per US dollar, as investors digested Ottawa's retaliatory measures in the escalating trade dispute with Washington.
Canada announced matching tariffs on US imports worth roughly $20 billion annually, responding in kind to the 50% duty imposed by the US on certain Canadian goods. The government also unveiled support programs for affected businesses and workers.
The escalation presents a delicate challenge for the Bank of Canada, according to analysts. While the tariffs are expected to weigh on economic growth, the combination of retaliatory duties and persistently high oil prices may discourage the central bank from cutting interest rates. Markets currently price in about a 40% chance of a rate hike by year-end.
Despite the trade tensions, the loonie has gained 1.3% since the start of August, supported by signs of domestic economic strength and a broadly weaker US dollar.
Oil prices, a key driver for Canada's export-driven economy, fell 3.3% to $82.19 a barrel as traders downplayed the supply risks from US sanctions on Iran.
Canadian government bond yields declined across the curve, with the 10-year note dropping 3.8 basis points to 3.646%. The two-day slide of 12 basis points marks the sharpest pullback among G7 sovereign bonds, though it remains below the two-year high of 3.770% hit on Friday.