The Canadian dollar moved slightly lower against the U.S. dollar on Thursday, trading close to a one-week low as renewed strength in the greenback kept pressure on the loonie.
The Canadian currency was last down around 0.06% at C$1.3885 per U.S. dollar, equal to roughly 72.02 U.S. cents.
USD/CAD opened near C$1.3875 and traded in a relatively narrow range between C$1.3873 and C$1.3887 during the session.
Loonie Holds Near Recent Lows
The latest move was limited compared with Wednesday’s decline.
The Canadian dollar fell around 0.4% in the previous session, touching C$1.3892, its weakest level since Aug. 19.
On Thursday, however, the loonie remained close to the previous day’s levels rather than extending the selloff significantly.
This suggests traders are waiting for a stronger market catalyst before pushing USD/CAD decisively higher or lower.
U.S. Dollar Strength Pressures the Canadian Dollar
The main source of pressure on the loonie has been broader U.S. dollar strength.
The U.S. Dollar Index was trading around 99.158 and was up approximately 0.3% for the week.
Investors have been positioning ahead of Federal Reserve Chair Kevin Warsh’s appearance at the Jackson Hole symposium, where markets are looking for fresh guidance on interest rates and inflation.
A stronger U.S. dollar typically creates headwinds for the Canadian dollar, particularly when expectations for U.S. interest rates remain elevated.
U.S. Inflation Keeps Fed Rate Outlook in Focus
Recent U.S. economic data has strengthened expectations that the Federal Reserve may need to keep monetary policy restrictive.
July’s Personal Consumption Expenditures Price Index increased 3.7% year over year, slightly above economists’ forecasts.
On a monthly basis, PCE inflation rose 0.2%.
Meanwhile, U.S. second-quarter economic growth was confirmed at an annualized rate of 1.5%.
These figures have kept the outlook for Federal Reserve interest rates at the center of currency market trading.
Fed Rate Expectations Support USD/CAD
Investors have increased expectations that the Federal Reserve could raise interest rates in September.
Markets are now closely watching Warsh’s Jackson Hole comments for clues about whether policymakers remain concerned about persistent inflation.
For the Canadian dollar, a relatively more hawkish U.S. interest-rate outlook can be negative.
Higher U.S. yields can make dollar-denominated assets more attractive to investors, increasing demand for the greenback.
This dynamic has helped keep USD/CAD above the C$1.38 level after the pair moved sharply higher earlier in the week.
Canada-U.S. Trade Tensions Add More Uncertainty
The loonie is also facing pressure from renewed Canada-U.S. trade tensions.
The breakdown in negotiations between the two countries has increased uncertainty surrounding Canada’s economic outlook.
Canada introduced retaliatory tariffs on approximately C$20 billion of U.S. imports after trade talks with Washington collapsed.
The United States also imposed new tariffs on Canadian goods.
These developments have created another source of risk for the Canadian economy and may be contributing to recent weakness in the currency.
Canadian Dollar Trading Remains Relatively Calm
Despite the combination of U.S. dollar strength, Federal Reserve uncertainty and trade tensions, Thursday’s move in the Canadian dollar has remained modest.
USD/CAD was only around 0.06% higher during the session.
The narrow trading range between C$1.3873 and C$1.3887 also suggests that investors are reluctant to take aggressive positions ahead of upcoming Federal Reserve commentary.
For now, the Canadian dollar remains near recent lows, with the next major move likely to depend on changes in U.S. interest-rate expectations, Federal Reserve guidance and developments in Canada-U.S. trade relations.
