Canadian dollar coins, commonly known as the “Loonie,” are seen in Toronto on Jan. 23, 2015. Mark Blinch/Reuters
While the Canadian loonie has enjoyed a two-month rise, additional U.S. tariffs have halted its momentum and could cause it to slide further.
The United States imposed new 50 percent tariffs on Canada on Aug. 22 after trade talks collapsed the day before. The country then on Aug. 24 threatened more steep tariffs to come, on Canadian automobiles and steel starting Jan. 1, 2027, after Ottawa announced counter-tariffs set to take effect Sept. 8.
While the new U.S. tariffs are likely to put increased downward pressure on the Canadian dollar and a potential increase in U.S. interest rates likely to add to it, economists say the loonie’s value is unlikely to fall dramatically.
“My sense is that we’re in such unprecedented territory that there’ll be some slight moderation, but it’s not like the Canadian dollar is going to fall to 60 cents U.S. or something like that,” said Eric Miller, president of Rideau Potomac Strategy Group.
Jack Mintz, president’s fellow at the University of Calgary’s School of Public Policy, said the larger risk to the Canadian dollar is not the U.S. tariffs themselves but the impact they could have on investor confidence in Canada.
Steve Ambler, professor emeritus of economics at University of Quebec, said that while a lower Canadian dollar will help with Canada’s exports by lowering their price relative to other countries’ goods, it will also make imports into Canada more expensive, adding to cost-of-living pressure for individuals and higher costs for businesses.
Rise and Fall of the Loonie
The loonie’s value in comparison to the U.S. dollar has fluctuated over the past few years, but it is now 72 cents, around two cents lower than it was at the end of August 2024.
The loonie’s value fell from 75 cents at the beginning of 2024 to 69 cents at the end of 2024, as the Bank of Canada began cutting interest rates—weakening the value of the Canadian dollar—and then-President-elect Donald Trump threatened to impose tariffs on Canada.
The loonie’s value then rose to about 73 cents in April 2025 as the White House announced “Liberation Day” tariffs on nearly every country. Canada was excluded from these tariffs because other duties had already been imposed on the country a month earlier over border security and fentanyl trafficking concerns. The loonie then steadily declined about 2 cents from May to July 2026, reaching around 70 cents, as the U.S. dollar strengthened.
The two-month decline also came as Canada entered a technical recession in the first quarter of 2026, due to two consecutive quarters of declining GDP on an annualized basis, amid rising expectations that the U.S. Federal Reserve could raise interest rates.
While Trump first threatened additional 50 percent tariffs on Canada on July 21, the loonie dropped only by 1/5 of one cent before continuing to rise. The rise of the Canadian dollar came as the prices of oil, a key Canadian export, also rose.
While it looked like Ottawa and Washington would reach a deal on Aug. 21, talks fell apart at the 11th hour, and the loonie’s value fell by nearly half of one cent.
Tariffs’ Impact on the Dollar
Washington imposed 50 percent tariffs on US$20 billion (CA$27.6 billion) worth of Canadian goods on Aug. 22. In response, Ottawa announced that it will impose dollar-for-dollar, rate-for-rate counter-tariffs on $27.6 billion worth of U.S. imports starting Sept. 8.
Trump then said he will impose new 50 percent tariffs on all Canadian cars, trucks, and auto parts effective Jan. 1, 2027. Current tariffs on Canadian autos are 25 percent. The president also included Canadian steel in the announcement, which, along with aluminum and copper, is already tariffed at 50 percent.
Miller said the loonie was on an “upward trajectory” before Canada–U.S. trade talks broke down, and the momentum has since reversed. “We’re in some sense in such unknown territory that markets are not really sure how to think about this and how to react to this. … We’re probably not going to see major gyrations, at least in the shorter term,” he said of the Canadian dollar.
Miller said the full impact of the tariffs on the Canadian dollar is difficult to know for certain, and Sept. 8 will be “a place to watch,” given that Canadian counter-tariffs are set to take effect that day.
He added that unforeseen developments could weaken the Canadian dollar, such as the United States and Mexico reaching a bilateral trade deal, while rising investor concerns over U.S. debt could weaken the U.S. dollar and strengthen the loonie.
Additionally, Miller said a lower Canadian dollar would benefit Canadian exporters by making products more economically attractive, and could even offset some of the costs of U.S. tariffs. However, he said it would make imports more expensive, which would be “very poor for purchases of capital equipment and capacity growth.”
Ambler said U.S. tariffs and Canadian counter-tariffs are likely “baked into” the exchange rate, and suggested that the current tariffs will not dramatically alter the loonie’s value in the short term.
However, Ambler said more U.S. tariffs in response to Canada’s counter-tariffs could lower the loonie’s value further. “Sometimes there’s a change which makes predictions about the future more certain, whereas in this particular case, I think it’s made predictions about the future much less certain,” he said.
Mintz said that while the impact of U.S. tariffs on the Canadian economy could be limited, given that they only apply to around 7 or 8 percent of Canadian imports, the larger damage to the Canadian dollar could come from lower investor confidence.
“I think the concern is really kind of about the future, and investors may be less willing to invest money into Canada given these uncertainties that are now playing havoc, and so that could also impact the Canadian dollar,” Mintz said.
Interest Rate Uncertainty
What could have even more of an impact on the value of the loonie is interest rate decisions in Canada and the United States, but the trajectory of both central banks is more uncertain.
Ambler said the Bank of Canada is facing a “bit of a dilemma” over whether to raise or lower interest rates, given that the country is facing both higher inflationary pressures and U.S. tariffs potentially weakening Canadian economic activity. He said that while the central bank had been projected to raise interest rates, which would have strengthened the loonie, the new U.S. tariffs had lowered the chances of this happening.
The Bank of Canada is widely expected to keep its key interest rate at 2.25 percent on Sept. 2.
South of the border, Ambler noted that Federal Reserve Chair Kevin Warsh had recently given a press conference where he cited concerns with stubbornly high inflation, which indicated a higher chance that the Fed will raise interest rates. That would, in turn, strengthen the U.S. dollar and weaken the Canadian loonie.
Miller noted that Warsh is also facing political pressure from Trump to cut interest rates, which may lead the Federal Reserve to hold rates steady until after the November mid-term elections.
“There’s always the risk of external events, but I think the Fed is going to do everything in their power to do nothing between now and the midterms. So you’re really looking at rate adjustments in January,” Miller said.