The U.S. dollar rose against the Canadian dollar on Wednesday as sticky U.S. inflation data and an escalating trade dispute between Ottawa and Washington pressured the loonie. USD/CAD touched its weakest level for the Canadian currency since Aug. 19, with President Trump sharpening his rhetoric on tariffs.
USD/CAD traded around C$1.3876, up 0.27%, after swinging between an intraday high of C$1.3893 and a low of C$1.3836. The loonie earlier fell to C$1.3892 per U.S. dollar, its weakest level since Aug. 19, leaving the Canadian dollar near 72.07 U.S. cents.
US inflation firms up rate-hike bets
The Canadian currency came under renewed pressure after U.S. personal consumption expenditures inflation held at 3.7% annually, above the 3.6% expected, strengthening the case for a Federal Reserve rate hike. Core PCE remained at 3.3%, and both measures rose 0.2% from the previous month.
As a result, futures markets increased the probability of a September hike following the data, even as inflation remains well above the central bank's 2% target. The dollar was modestly higher against major currencies as investors positioned ahead of the data.
Trade dispute deepens the loonie's headwind
The inflation print adds to pressure on the Canadian dollar as the two countries escalate a trade fight. Canada announced C$27.6 billion ($20 billion) in retaliatory tariffs on U.S. goods on Tuesday, matching the value of new U.S. tariffs and targeting more than 700 products, with the measures due to take effect on Sept. 8. Washington had imposed 50% tariffs on a similar value of Canadian imports.
President Donald Trump escalated his rhetoric on Wednesday, saying: "time to teach Canada you can't do this anymore", adding to uncertainty over whether the two countries can revive stalled trade negotiations.
For the loonie, higher U.S. rate expectations and trade uncertainty present a double headwind. Investors are also watching crude oil prices, given Canada's status as a major energy exporter and the currency's sensitivity to moves in crude.
Source: Investing.com
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