VIDEO The languishing Canadian dollar flirted with the 73 cents US mark this week after United States President Donald Trump announced that Canada and U.S. had reached a tentative trade deal Tuesday evening, but currency watchers are warning the rebound may be short-lived.
This week’s move, in which the loonie hit 72.8 cents US before falling back Friday to trade around 72.64 cents US, capped a two-month run that has seen the dollar rise more than 2.6 per cent from it’s June lows of close to 70 cents US.
But as Canadian and U.S. negotiators met to finalize details of the deal ahead of the Saturday deadline, loonie watchers were reluctant to attribute much of the recent strength to the prospect of a deal.
Karl Schamotta, chief market strategist at Corpay Cross-Border Solutions, said the Canadian dollar’s moves were primarily driven by the bond buyback announcement on Wednesday, when U.S. Treasury officials announced that it would be doubling buyback operations — from US$2 billion to US$4 billion — for longer-dated bonds, which weakened the U.S. dollar .
“Broadly speaking, what’s happening to the U.S. dollar is overwhelmingly the driving force in what’s showing up in the Canadian dollar exchange rate right now,” he said.
David Rosenberg of Rosenberg Research and Associates noted that the loonie was already rallying before Trump announced the tentative deal, mostly due to a string of data releases suggesting the Canadian economy rebounded in the second quarter of 2026.
The Canadian dollar’s strength this week could also be due to a recent spike in global oil prices as tensions re-escalate in the Middle East, he said. Brent crude, the international benchmark, rose by about two per cent to more than US$93.5 per barrel on Thursday. West Texas Intermediate crude, the U.S. benchmark, rose to US$86.54 per barrel.
“If the oil price hadn’t bounced back in the past several weeks, now that this ceasefire proved to be fake, the Canadian dollar wouldn’t be trading where it is right now,” Rosenberg said.
Both Rosenberg and Schamotta are skeptical that the loonie’s strength will last.
Schamotta said there is still significant trade uncertainty tied to the Canada-U.S.-Mexico Agreement (CUSMA), which was not renewed by the Trump administration and is now subject to 10 years of rolling annual reviews. That ongoing uncertainty will still force Canadian businesses to hold back on investing and hire fewer employees, while consumers will continue to be more prudent with their spending.
“We are seeing warmth in a number of economic indicators, everything from gross domestic product growth to employment to trade.… But we also have very major downside risks, and those downside risks are really going to be priced into the Canadian dollar in the form of a risk discount for a prolonged period here,” Schamotta said in an interview.
“In the near term, the devil is in the details.”
Rosenberg said tariffs won’t go away even if Trump and Prime Minister Mark Carney sign a new trade deal. Canada’s steel, aluminum and auto sub-sectors will still face stiff Section 232 tariffs that have led to job losses and uncertainty in the manufacturing sector.
“So whatever it is that we’re celebrating, we’re only celebrating the removal of the tariff risk, as far as the economy is concerned. Keep in mind the threat all along was only on a small group of exports, and you’re talking about a 10 basis point impact on Canadian GDP growth,” he said. “So if that’s what gets you excited. Go knock yourself out.”
However, Schamotta said it’s possible for the loonie to recover.
“The U.S. dollar today is incredibly overvalued. For decades, the world has been pouring money into U.S. equity markets, into U.S. bond markets, into U.S. Treasury markets. The world has taken a huge one-way bet on the U.S. continuing to remain exceptional, and this has led to a situation in which the U.S. dollar has appreciated relative to currencies like the Canadian dollar,” he said.
“Investors could become a little bit more skeptical of that U.S. story. If they start thinking they have to diversify, that would break the dollar U.S. down and that would help the Canadian dollar to recover.”
However, Schamotta said that won’t happen anytime soon.
“In the short run, we just have too many downside risks for traders to watch out for, and they’re not going to get behind the loonie in a big way,” he added.
Rosenberg, however, said structural economic and policy reforms are needed to boost the Canadian dollar.
Productivity in Canada has been stagnant or negative for the past few decades, in large part due to a lack of government investment into new technologies such as artificial intelligence, he said.
The key interest rate differential in the United States and Canada has also played a role in weakening the loonie, Rosenberg added. Canada’s interest rate is lower due to underperforming economic growth.
“Our interest rates are so dramatically lower now than the United States,” he said. “That interest rate structure, 100 basis points plus below the U.S., is telling something about the relative malaise in the Canadian economy, and it is structural, not cyclical.”
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