The Canadian dollar's recent rise has more to do with U.S. dollar weakness than a potential trade deal with the U.S.
The languishing Canadian dollar flirted with the 73 cents US mark this week after United States President Donald Trump announced that Canada and U.S. had reached a tentative trade deal Tuesday evening, but currency watchers are warning the rebound may be short-lived.
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This week’s move, in which the loonie hit 72.8 cents US before falling back Friday to trade around 72.64 cents US, capped a two-month run that has seen the dollar rise more than 2.6 per cent from it’s June lows of close to 70 cents US.
But as Canadian and U.S. negotiators met to finalize details of the deal ahead of the Saturday deadline, loonie watchers were reluctant to attribute much of the recent strength to the prospect of a deal.
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Karl Schamotta, chief market strategist at Corpay Cross-Border Solutions, said the Canadian dollar’s moves were primarily driven by the bond buyback announcement on Wednesday, when U.S. Treasury officials announced that it would be doubling buyback operations — from US$2 billion to US$4 billion — for longer-dated bonds, which weakened the U.S. dollar.
“Broadly speaking, what’s happening to the U.S. dollar is overwhelmingly the driving force in what’s showing up in the Canadian dollar exchange rate right now,” he said.
David Rosenberg of Rosenberg Research and Associates noted that the loonie was already rallying before Trump announced the tentative deal, mostly due to a string of data releases suggesting the Canadian economy rebounded in the second quarter of 2026.
The Canadian dollar’s strength this week could also be due to a recent spike in global oil prices as tensions re-escalate in the Middle East, he said. Brent crude, the international benchmark, rose by about two per cent to more than US$93.5 per barrel on Thursday. West Texas Intermediate crude, the U.S. benchmark, rose to US$86.54 per barrel.
