The USDCAD has been trending higher this week, supported by a combination of geopolitical tensions, widening interest-rate differentials, and a weakening Canadian economic backdrop.
From a fundamental perspective, the Canadian dollar initially came under pressure as tensions in the Middle East escalated after reports that both Iran and the U.S. violated the ceasefire, exchanging missile and drone strikes
The renewed conflict reignited risk aversion and boosted demand for the U.S. dollar as a safe-haven currency. The Canadian dollar is often vulnerable in these environments due to its close ties to global growth and commodity demand. Adding to the uncertainty, the CUSMA trade review formally began on Tuesday when Trade Minister Dominic LeBlanc arrived in Washington.
However, President Trump quickly struck a confrontational tone by posting “51st State” on Truth Social ahead of the talks, renewing concerns about future trade tensions and tariffs. The rhetoric did little to support the loonie. A more persistent driver has been the widening interest-rate differential between Canada and the United States.