Canadian Dollar Falls to 1.3560 as Critical US Tariff Deal Remains Uncertain

The Canadian dollar dropped Friday. It hit 1.3560 against the US dollar, and traders didn’t like what they saw — or rather, what they couldn’t see. The whole forex market is basically holding its breath waiting on a tariff deal that may or may not materialize on anyone’s schedule.

Investors have been nervous for weeks now. The ongoing trade discussions between Canada and the United States have kept the loonie under real pressure, with no clear end in sight. The core worry is pretty straightforward: if tariffs stay in place — or get worse — Canadian exports take a hit, and the currency follows. Speculation about what the deal might actually look like has made traders cautious, almost paralyzed. Nobody wants to take a big position when the ground keeps shifting. The lack of concrete details coming out of the negotiations is probably the single biggest driver of the current mood, and that mood is somewhere between wary and quietly pessimistic.

Not exactly a recipe for stability.

What’s Keeping the Loonie Weak

The negotiations are at what both sides are calling a critical stage. Both Canada and the United States are pushing for an outcome that works in their favor — which is, of course, what every trade negotiation looks like from the outside. The problem is that “beneficial outcome” means different things depending on which side of the border you’re standing on. Until there’s actual language on paper, the market is going to keep reacting to rumors, leaks, and whatever comes out of official statements.

Oil prices are also in the mix. Canada’s economy leans hard on energy exports, and any swing in global oil demand or supply tends to ripple straight into the Canadian dollar’s value. It’s one of those relationships that traders know well but can’t always predict. Global demand signals have been mixed, and that ambiguity adds another layer of pressure on top of the tariff uncertainty.

And then there’s the US dollar itself. The greenback has been strong against a range of major currencies, pushed up by domestic economic indicators and general investor preference for dollar-denominated assets when things get murky. A strong US dollar makes the Canadian dollar’s situation harder almost by default — it’s competing against a currency that’s got momentum on its side right now.

Bank of Canada Watches and Waits

The Bank of Canada hasn’t moved on interest rates, and officials are keeping a close eye on how the trade situation develops. The central bank has said before that it would adjust its approach based on economic conditions — and trade-related factors are very much part of that calculation. So the tariff talks aren’t just a political story. They’re a monetary policy story too.

More context: FTX Creditor Daizhuo Chen Fights Missed Deadline as $1.8B Reserve Hangs Over Final Hearing

The timing matters. Canada’s export sector is big, and any meaningful tariff changes would work their way through the economy fast enough to affect growth and inflation numbers. The bank’s next move probably depends more on how these negotiations resolve than on any single domestic data point. That’s a somewhat uncomfortable position for a central bank — waiting on diplomats and trade officials to set the conditions for your next decision.

Unclear whether officials are frustrated by that dynamic. They’re not saying.

Traders Brace for More Swings

Market participants are preparing for volatility. Any announcement — or even a credible leak — from the negotiations could move the currency pair sharply in either direction. Traders are balancing the risk of getting caught on the wrong side of a sudden announcement against the cost of sitting out a potential rally if a deal gets done.

Some analysts think a favorable tariff agreement could actually give the Canadian dollar a real lift. Removing the uncertainty would, on its own, alleviate some of the pressure currently weighing on the loonie. A clear path forward tends to be good for currency confidence, even if the specific terms aren’t perfect. But the timing and the terms both remain unclear, and “unclear” is not what forex markets tend to reward.

The Federal Reserve’s monetary policy is another variable traders are watching. Changes in US interest rates affect investor strategy globally, and the Canadian dollar isn’t immune to that. If the Fed moves in a direction that strengthens the dollar further, the loonie feels it.

So the market sits in a kind of tense equilibrium — watching Ottawa, watching Washington, watching oil prices, watching the Fed. Every piece of news from the trade talks gets parsed immediately. Any hint of progress shifts positions. Any sign of a breakdown does the same, just in the opposite direction.

The Canadian dollar closed at 1.3560.