2026.08.2817:55:58UTC+00Loonie Slips Despite Strong Canadian GDP

The Canadian dollar weakened to 1.39 per USD, pulling back from a three-month high of 1.376 reached on August 21st, as a more hawkish policy tone from Fed Chair Warsh bolstered the US currency. Warsh emphasized that the Fed is tracking the PCE index as its key inflation gauge, using firmer language than earlier remarks that had hinted a newly created task force might reconsider the central bank’s preferred measure. In response, rate futures shifted to more fully price in the possibility of a Fed rate hike next month.

By contrast, the Bank of Canada is widely expected to leave interest rates unchanged at its September 2nd meeting. A Fed hike alongside a BoC hold would widen the US-Canada rate differential, increasing the appeal of US assets and adding further downward pressure on the Canadian dollar.

On the domestic front, Canada’s GDP grew at its fastest pace in nearly two years, supported by a rebound in auto production, which has helped cushion the economy against trade-related risks. Nonetheless, President Trump’s threat to raise tariffs on Canadian cars, trucks, and auto parts to 50% from January 1st, 2027, continues to pose a significant headwind.