Canadian Dollar Weakens as Traders Eye Fed Outlook and Greenback Strength

The Canadian dollar edged lower against the U.S. dollar on Thursday, trading near a one-week low as a broadly stronger greenback and anticipation of hawkish signals from the U.S. Federal Reserve weighed on the currency.

The USD/CAD pair was last trading around C$1.3885, representing a loss of about 0.06% for the Canadian dollar, or a value of approximately 72.02 U.S. cents. The move followed a more significant 0.4% slide on Wednesday, which saw the pair touch C$1.3892, its highest level since August 19.

Greenback Gains on Hawkish Fed Bets

The loonie's weakness was primarily a reflection of sustained strength in the U.S. dollar. The Dollar Index (DXY), which measures the greenback against a basket of major currencies, was trading around 99.158, putting it on track for a weekly gain of about 0.3%.

Investor sentiment has been shaped by recent U.S. economic data reinforcing expectations that the Federal Reserve will keep interest rates elevated. Recent figures showed the Personal Consumption Expenditures (PCE) price index rising 3.7% year-over-year, while second-quarter economic growth was confirmed at a 1.5% annualized rate. Market participants are now closely focused on the upcoming Jackson Hole economic symposium for clues on the central bank's policy path.

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Trade Tensions Add to Headwinds

Adding to the pressure on the Canadian currency are renewed trade tensions between Canada and the United States. A reported breakdown in negotiations has introduced another layer of uncertainty for Canada's economic outlook, contributing to the loonie's recent weakness.

Canada reportedly announced retaliatory tariffs on approximately C$20 billion in U.S. imports in response to new U.S. duties on Canadian goods. While the currency's movement was relatively contained during Thursday's session, trading in a narrow range between C$1.3873 and C$1.3887, the unresolved trade issues remain a key risk factor for the Canadian dollar.