Investing.com –The Canadian dollar weakened on Wednesday, with the U.S. dollar rising against the loonie as renewed trade tensions with the United States and sticky U.S. inflation increased pressure on the currency.
USD/CAD was last around C$1.3876, up 0.27%, after reaching an intraday high of C$1.3893 and a low of C$1.3836. The loonie earlier fell to C$1.3892 per U.S. dollar, its weakest level since Aug. 19, while the Canadian dollar was around 72.07 U.S. cents
The Canadian currency came under renewed pressure after U.S. inflation data showed price pressures remained elevated in July, strengthening the case for a Federal Reserve rate hike and supporting the U.S. dollar. Headline personal consumption expenditures inflation held at 3.7% annually, above the 3.6% expected, while core PCE remained at 3.3%. Both measures rose 0.2% from the previous month.
The data adds to pressure on the Canadian dollar at a time when Ottawa and Washington are escalating their trade dispute. Canada has announced retaliatory tariffs on about C$27.6 billion ($20 billion) of U.S. goods after Washington imposed 50% tariffs on a similar value of Canadian imports.
Canada announced C$27.6 billion ($20 billion) in retaliatory tariffs on U.S. goods on Tuesday, matching the value of new U.S. tariffs and targeting more than 700 products. The measures are due to take effect on Sept. 8.
U.S. President Donald Trump escalated his rhetoric on Wednesday, saying it was “time to teach Canada you can’t do this anymore,” adding to uncertainty over whether the two countries can revive stalled trade negotiations.
The Canadian dollar is also taking direction from broader moves in the U.S. currency. The dollar was modestly higher against major currencies on Wednesday as investors positioned ahead of U.S. personal consumption expenditures inflation data, which could influence expectations for Federal Reserve policy.
The latest inflation figures could further widen expected interest-rate support for the U.S. dollar, particularly as markets reassess the chances of a Fed rate hike in September. Futures markets increased the probability of a September hike following the data, while inflation remains well above the central bank’s 2% target.
For the loonie, the combination of higher U.S. rate expectations and trade uncertainty presents a double headwind. Investors are also watching oil prices, given Canada’s status as a major energy exporter and the currency’s sensitivity to movements in crude.
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