Inflation remains below Bank of Canada's target
The Canadian dollar gained 0.7% to 1.3815 per US dollar, or 72.39 US cents, on Friday, erasing its weekly loss. The move came after Federal Reserve Chair Jerome Powell signaled the possibility of a rate cut and Canada announced steps to ease trade tensions with the United States, Reuters reported.
The gain puts the currency on track for its largest one-day rise since May 23. For the week, however, the loonie was little changed, pressured earlier by softer inflation data that increased expectations of a Bank of Canada policy cut in the coming months.
Scotiabank strategists said the loonie had been under pressure from the US dollar in recent days but recovered following Powell’s “cautiously dovish” comments at the Jackson Hole symposium.
Powell acknowledged risks to the labor market and ongoing inflationary pressures from tariffs but stopped short of committing to a rate cut at the Fed’s September meeting. Markets are now pricing in higher odds of a near-term policy adjustment, with bond yields falling across the curve. Canada’s 10-year yield dropped 5.3 basis points to 3.434%, mirroring declines in US Treasuries.
Canada will remove 25% retaliatory tariffs on a wide range of US consumer goods, including orange juice, wine, clothing, and motorcycles, The New York Post reported. The move affects roughly $21.7 billion in US goods that comply with provisions of the US-Mexico-Canada Agreement (USMCA).
Tariffs on US steel, aluminum, and automobiles will remain in place. Prime Minister Mark Carney said Canada also plans to intensify trade and security discussions with Washington, signaling efforts to stabilize economic ties ahead of the upcoming USMCA review.
The tariff rollback follows months of escalating tensions that began when the US imposed 25% duties on most Canadian and Mexican imports in February, later raising them to 35%. Canada responded with its own levies on about $20 billion in US goods, a move that disrupted supply chains and drove up costs, Trading View reported.
Analysts say the removal of tariffs could ease some consumer price pressures, particularly for groceries and other basic goods, though it will reduce tariff revenue for the government, according to BMO Capital Markets.
Retail sales rose 1.5% in June, in line with expectations, but a preliminary estimate showed a 0.8% decline in July. Statistics Canada reported a 1.7% increase in the consumer price index in July from a year earlier, below the Bank of Canada’s 2% target, suggesting that tariffs have not significantly fueled inflation.
While tensions between Ottawa and Washington are not fully resolved, officials on both sides described the latest steps as a pathway to steadier trade discussions and potential updates to the USMCA.
