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Canadian Dollar Faces Renewed Downside Risk as Trade War Escalates, Corpay Says

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The Canadian dollar faces renewed downside pressure as trade tensions with the US escalate, according to Corpay in a Wednesday note.

The loonie is modestly weaker on Wednesday after Canada announced the day before retaliatory tariffs on roughly C$28 billion of US imports, alongside support for affected businesses and workers, wrote Corpay Chief Market Strategist Karl Schamotta in the note.

The 15%, 25% and 50% Canadian tariffs on US imports cover hundreds of products and take effect on Sept. 8.

While the measures could strengthen Canada's negotiating position, they are likely to weigh on growth, investment and employment while lifting consumer prices, complicating the BoC's policy outlook. Corpay expects the BoC to hold next week for a sixth straight meeting, but strike a more dovish tone as downside risks grow.

"With markets still pricing in at least two hikes over the next year, we think the loonie could be exposed to some downside in the near term," added Schamotta.

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