After spending most of the year coasting on the idea that the U.S. was in trouble — high debt, sticky inflation, and an aggressive tariff agenda — global investors are doing a full 180. The U.S. dollar is back in style, and the Canadian dollar is paying the price.
Right up to last month, shorting (betting against) the U.S. dollar was the most crowded trade in global markets. The thinking was that between Fed rate cuts, President Trump’s tariff threats, and ballooning U.S. debt, the dollar would inevitably weaken — what some dubbed the “rest of the world trade.” But that bet is now unraveling fast. The U.S. economy has been stronger than expected, and the Federal Reserve just held rates steady again — with two members even voting to keep them higher for longer. That kind of hawkish tone has investors reversing course, pushing back into USD-based investments and sending the greenback higher, while currencies like the Canadian dollar start to slide.
Right now, the Canadian dollar is hovering around 1.38 against the U.S. dollar, near a two-month low — and there’s not much standing in the way of it falling further.
Part of the problem? The Bank of Canada is stuck. They didn’t cut rates this week either, citing stubborn inflation and global trade risks. While they left the door open to future cuts, the message was clear: they’re in wait-and-see mode. Translation? Don’t expect much movement unless inflation drops meaningfully and the economy slows — and even then, it’ll take more than one weak data point to trigger action.
And speaking of weak data… Canada’s May GDP came in at -0.1%, with 12 out of 20 sectors shrinking. Retail and energy were hit hardest. The early estimate for June? A tiny +0.1%. So, while the Canadian economy isn’t in crisis, it’s definitely not firing on all cylinders either.
Meanwhile, President Trump’s trade machine is revving up again. Canada’s trade talks with the U.S. have stalled, and Trump recently said Canada’s recognition of a Palestinian state could make things more complicated. The August 1 tariff deadline is right around the corner, and if no deal is reached, new tariffs could hit Canadian exporters — and, by extension, the Canadian dollar.
All of this is creating a perfect storm: U.S. markets look strong, the greenback looks solid, and the so-called “rest of the world” — including the Canadian dollar — looks shaky.
Bottom line: Between delayed Canadian rate cuts, resurgent U.S. economic strength, and global tariff drama, the Canadian dollar has few tailwinds. If inflation doesn’t ease quickly or trade talks between Canada and the U.S. don’t improve, we may see the loonie drift toward the 1.38–1.39 range in the near term.
The Canadian dollar is currently trading at 1.3853 CAD against the US Dollar.
