Investing.com — The Canadian dollar edged lower against the U.S. dollar on Thursday, with the loonie trading near a one-week low as a firmer greenback kept pressure on the currency ahead of closely watched Federal Reserve commentary.
The loonie was last down about 0.06% at C$1.3885 per U.S. dollar, equivalent to roughly 72.02 U.S. cents. USD/CAD opened around C$1.3875 and has traded between C$1.3873 and C$1.3887 so far in the session. The move was modest, with the Canadian currency holding close to the previous session’s levels rather than extending Wednesday’s sharper decline. The loonie fell about 0.4% on Wednesday to C$1.3885 after touching C$1.3892, its weakest level since Aug. 19.
The immediate pressure on the Canadian currency came from broader U.S. dollar strength. The dollar index was last at 99.158, up about 0.3% for the week, as investors positioned for Federal Reserve Chair Kevin Warsh’s appearance at the Jackson Hole symposium.
The dollar has gained ground as recent U.S. data reinforced expectations that interest rates could remain elevated. July’s personal consumption expenditures price index rose 3.7% year over year, slightly above economists’ expectations, while the monthly measure increased 0.2%. U.S. second-quarter economic growth was also confirmed at an annualized 1.5%.
Those figures have made the U.S. rate outlook an important driver of Thursday’s currency moves. Markets have increased the probability of a Federal Reserve rate increase in September, while investors are looking to Warsh’s Jackson Hole remarks for clues about how policymakers view persistent inflation and the path for borrowing costs.
For the Canadian dollar, that creates an unfavourable interest-rate backdrop because a relatively stronger U.S. rate outlook can increase demand for the greenback. The effect is visible in USD/CAD, which has remained above C$1.38 after moving sharply higher earlier in the week.
The loonie is also being watched against the backdrop of renewed Canada-U.S. trade tensions, although the latest session has been relatively calm. The breakdown in trade negotiations has increased uncertainty around Canada’s economic outlook and contributed to the currency’s recent retreat.
Canada imposed retaliatory tariffs on about C$20 billion of U.S. imports after trade talks with Washington collapsed, while the United States imposed new tariffs on Canadian goods. The developments have added another source of uncertainty for the Canadian economy and the currency.
Despite those pressures, Thursday’s move remains limited. USD/CAD is only about 0.06% higher on the day, leaving the loonie close to its recent lows rather than undergoing another sharp selloff. The session’s narrow range of 1.3873 to 1.3887 suggests traders are waiting for a fresh catalyst before pushing the currency decisively in either direction.
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