Canadian Dollar Slides as U.S. Threatens 50% Tariffs on Autos and Steel

The Canadian dollar weakened by as much as 0.6% against the U.S. dollar on Monday following threats from former U.S. President Donald Trump to impose steep new tariffs on Canadian automobiles and steel. The currency retreated significantly from a recent two-month high as investors reacted to the escalating trade dispute between the two countries.

U.S. Threatens Tariffs, Canada Pledges Retaliation

In a post on his Truth Social platform, Trump threatened to implement a 50% tariff on Canadian autos, auto parts, and steel, effective January 1, 2027. According to Investing.com, the announcement came after bilateral trade negotiations reportedly broke down over the weekend.

In response, Ottawa has vowed to implement countermeasures. A Canadian official described the situation in stark terms, telling reporters, "When you are attacked, you are at war. We have been attacked." Canada has scheduled retaliatory tariffs on U.S. goods—including steel, dairy, appliances, and agricultural equipment—to take effect on September 8.

Market Impact

The Canadian dollar, or loonie, was trading at approximately 72.24 U.S. cents on Monday. The USD/CAD currency pair, which reflects how many Canadian dollars are needed to buy one U.S. dollar, rose to around C$1.385.

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The move was amplified by broader strength in the U.S. dollar. The U.S. Dollar Index (DXY), which measures the greenback against a basket of currencies, rose 0.2% to 98.981, according to data cited from Reuters. While a stronger U.S. dollar added pressure, the specific tariff issue was the main driver for the USD/CAD pair.

Economic and Technical Context

The sell-off erases recent gains for the loonie, which had been supported by strong domestic economic data, including a 3.4% annualized GDP growth rate in the second quarter and the addition of 75,000 jobs in July. According to Karl Schamotta of Corpay Cross-Border Solutions, a U.S. Treasury bond buyback plan had also recently boosted the Canadian currency.

Analysts at City Index suggested Monday's move was partly a technical "short squeeze," noting that the USD/CAD pair's daily Relative Strength Index (RSI) had entered oversold territory for the first time since January. While rising crude oil prices provided some limited support for the commodity-linked currency, the market's focus remains squarely on the tariff risks.