Canadian Dollar: Trade tensions threaten recovery against US Dollar - OCBC

OCBC's Sim Moh Siong and Christopher Wong express concern that escalating US-Canada trade tensions could hinder the Canadian Dollar's (CAD) recent recovery. The collapse of trade talks, coupled with 50% US tariffs and Canada's planned dollar-for-dollar retaliation effective 8 September, injects fresh uncertainty into the economic outlook as falling unemployment had started to bolster the loonie.

Just as a Canada-U.S. trade deal seemed attainable, negotiations abruptly ended. The U.S. has imposed tariffs on approximately USD20bn of Canadian imports, prompting Canada to retaliate dollar-for-dollar from 8 September, targeting industries like steel, dairy, and electronics. This setback raises doubts about the future of the USMCA and may adversely affect Canada's improving economic conditions.

Although domestic factors indicated a rebound with unemployment hitting a two-year low of 6.4% in July, renewed trade tensions risk undoing that progress and leaving the CAD exposed after its recent recovery.