The Canadian dollar (CAD) has shown renewed strength this week, gaining ground against the U.S. dollar (USD) after a few turbulent days in the markets. By Thursday, the loonie — Canada’s nickname for its dollar — was trading around 1.3794 to the greenback. That’s a 0.3% daily gain, reflecting a subtle but telling shift in momentum.
So, what’s behind this bounce in the CAD?
A Blow to Trump’s Tariffs
A U.S. federal court ruling struck down recent tariffs imposed by the Trump administration, clarifying that only Congress has the authority to regulate international trade. Initially, the U.S. dollar rallied on optimism that easing trade tensions might help the broader economy. But that enthusiasm faded fast as markets refocused on economic fundamentals.
U.S. Economy Stumbles
Data released this week revealed that the U.S. economy shrank by 0.2% in the first quarter of 2025 — the first contraction in three years. Slower consumer spending and a spike in imports weighed down growth. This economic softness has raised expectations that the Federal Reserve could begin cutting interest rates later this year — a move that typically weakens the dollar.
Oil Prices Fuel the Loonie
Meanwhile, oil prices — a key factor for Canada’s commodity-driven economy — climbed earlier this week from $60 to $63 a barrel before stabilizing around $61.74. As one of the world’s leading oil exporters, Canada often sees its currency strengthen when oil prices rise. That trend continued this week, lending support to the CAD.
Rising Yields Signal Canadian Confidence
Canadian 10-year bond yields rose to 3.258% while U.S. yields moved lower. This divergence reflects growing investor confidence in Canada’s economic position — or at least a belief that it’s ahead of the U.S. in its monetary policy cycle. Higher bond yields attract foreign capital, providing another tailwind for the loonie.
The “TACO Trade” Gains Traction
Traders are also keeping a close eye on the evolving narrative around trade policy. As tensions ease and markets breathe a sigh of relief, one new term is gaining popularity on Wall Street: the “TACO trade” — short for “Trump Always Chickens Out.”
After a string of dramatic tariff announcements followed by equally dramatic reversals, investors have begun treating Trump’s threats more as bluster than policy. When he recently delayed new tariffs on the EU following a call with European leaders, markets surged. The message is clear: the worst of the trade war may be behind us, and that’s good news for risk-sensitive currencies like the CAD.
Looking Ahead
Canada’s GDP numbers, due Friday, are expected to show modest growth of around 0.1%. That’s hardly blockbuster data, but when compared with a contracting U.S. economy, it’s enough to make the Canadian dollar look more appealing.
Bottom Line: With weakening U.S. data, stronger oil prices, rising Canadian yields, and fading trade war fears, the loonie is quietly gathering strength. If these trends hold, the Canadian dollar could have more upside in the weeks to come.
The Canadian dollar is currently trading at 1.38055 CAD against the US Dollar.
