The Canadian dollar softened against the U.S. dollar on Friday as crude oil prices pulled back from recent advances and market participants positioned themselves ahead of next week’s Federal Reserve interest rate decision.
Late-session quotes showed the loonie trading 0.1% weaker at 1.4095 per U.S. dollar, equivalent to 70.95 U.S. cents. During the session the currency touched 1.4114, its weakest intraday level since July 14.
For the week, the Canadian dollar declined 0.5%, ending a two-week streak of gains. The weekly drop came after threats from the U.S. to impose 50% tariffs on a range of Canadian goods, a development that added to downside pressure on the currency.
On Friday the U.S. implemented new tariffs of 10% and 12.5% on imports from 60 trading partners, measures that included goods from the European Union and China.
Market strategists at Monex Europe noted that the loonie’s trajectory is likely to remain tied to movements in crude oil, broader risk sentiment and trade-related headlines as investors await next week’s Fed decision and upcoming May GDP data.
Oil, an important export for Canada, retreated 3.8% to $88.72 a barrel on the day. Despite the drop, the commodity was still set for a sizeable weekly gain, supported by worsening disruptions to energy flows through the Red Sea and concerns about possible escalation in the U.S.-Israeli conflict involving Iran.
Those developments in energy markets have influenced the global inflation outlook, contributing to stronger market expectations that the Federal Reserve may raise interest rates, potentially as soon as Wednesday.
Speculative positioning reflected increased pessimism on the Canadian dollar, with bearish bets on the currency rising to the highest level versus other major currencies.
Market context and implications
- FX markets: The Canadian dollar's intraday weakness and the weekly decline highlight sensitivity to commodity prices and trade policy news.
- Energy sector: Movements in crude oil continue to be a key driver for the loonie given Canada's role as a major energy exporter.
- Monetary policy: Heightened expectations for near-term Fed tightening are influencing global rate-sensitive assets, including currencies.