TORONTO, August 24, 2026, 18:40 EDT — The Canadian dollar declined sharply on Monday after fresh tariffs reignited concerns about the currency, putting the USD/CAD exchange rate back on track toward the 1.40 mark.
- The Canadian dollar slipped roughly 0.5% after U.S.-Canada trade discussions collapsed.
- USD/CAD hovered close to 1.385, retracing the majority of last week’s move sparked by deals.
- An average forecast from five banks predicts the pair will reach 1.40 in the third quarter.
- Canada to respond with matching dollar-for-dollar measures following new 50% tariffs imposed by the U.S.
The Canadian dollar weakened on Monday as a trade truce collapsed. USD/CAD hovered close to 1.385, leaving the loonie at approximately 72.2 U.S. cents.
This development is significant as it wiped out the bulk of the previous week’s relief rally. USD/CAD reached 1.3757 on August 20 as investors were expecting a deal. Monday’s level was approximately 0.7% above that, indicating stronger demand for the U.S. dollar.
The adjustment could continue moving. According to a consensus from five banks, USD/CAD is expected to reach 1.40 this quarter, which is roughly 1.1% higher than where it stood on Monday. The poll also forecasts a move to 1.38 by the end of the year, if the impact dissipates.
| USD/CAD outlook | Q3 2026 | Q4 2026 | Q1 2027 | Q2 2027 |
|---|---|---|---|---|
| Average of five banks | 1.40 | 1.38 | 1.36 | 1.35 |
| National Bank | 1.40 | 1.37 | 1.35 | — |
| TD | 1.37 | 1.35 | 1.33 | — |
| Desjardins | 1.42 | 1.40 | 1.38 | — |
| BMO | 1.41 | 1.40 | 1.39 | — |
| CIBC | 1.40 | 1.37 | 1.36 | — |
The trigger was political. Prime Minister Mark Carney stated that Canada halted talks following a U.S. proposal with conditions he described as “uneconomic” and eroding the advantages of a potential agreement. Prime Minister of Canada
Washington imposed extra duties of 50% after a three-day pause that concluded on August 21. Ottawa reports that these tariffs affect about C$28 billion in Canadian exports.
Canada announced plans to impose equivalent tariffs in response. This increases the threat of reduced trade flows and steeper import expenses for both countries.
The market response in currencies was subdued. “There are only mild market reactions thus far,” noted Scotiabank economist Derek Holt. On Monday morning, the loonie continued to be the softest performer among major currencies versus the U.S. dollar. The Canadian Press
However, the trade channel is converging with weaker factory figures. Statistics Canada’s early estimate indicated that manufacturing sales in July slipped by 0.2%, mainly due to declines in chemicals and fabricated metal products. The estimate was based on a weighted response rate of 69.8% and could be updated.
A softer currency can help support exporters’ revenue in Canadian dollars, while also raising the domestic price of imported equipment and consumer products. This dynamic makes the Bank of Canada’s balance between inflation and growth more challenging.
Investors are watching 1.40 as the immediate resistance level. If USD/CAD rises above this point, it may push toward the upper end of the survey’s August range of 1.38–1.42. Holding below 1.38, on the other hand, would indicate that the impact of the tariff shock is being limited.
The upcoming phase is implementation. Investors will monitor the definitive tariff lists, possible exemptions, and any reactivated negotiating avenues. Canadian manufacturing data and oil prices are expected to influence the currency’s movement.
Risks: A swift resumption of diplomatic talks might undo Monday’s gain. Broader retaliatory actions, a decline in factory orders, or a drop in crude oil prices could send the loonie below present expectations.
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