Canadian Dollar slides as Trump escalates trade war with Canada

• The Canadian Dollar weakens after trade negotiations between Washington and Ottawa collapse and fresh tariffs are announced.
• Donald Trump threatens 50% tariffs on Canadian automobiles, auto parts and steel starting in January.
• The United States is set to broaden sanctions against Iran, potentially supporting Oil prices and limiting weakness in the Canadian currency.

USD/CAD extends its advance on Monday, trading around 1.3830 at the time of writing, up 0.52% on the day. The Canadian Dollar (CAD) comes under selling pressure after trade negotiations between the United States (US) and Canada collapse, while the prospect of a fresh tariff escalation supports the US Dollar (USD).

Trade tensions intensify after negotiations between Washington and Ottawa broke down on Friday. The United States imposes 50% tariffs on some Canadian products, while Canadian Prime Minister Mark Carney vows to retaliate “dollar for dollar” starting September 8. Carney says his government prefers to walk away from the negotiations rather than accept a bad deal.

US President Donald Trump further raises the pressure on Monday, announcing that tariffs on all Canadian cars, trucks, automotive parts and steel will be increased to 50% starting January 1, 2027. Trump also accuses Canada of taking advantage of its trade relationship with the United States for years and encourages affected companies to move production to US territory to avoid tariffs.

The latest escalation reinforces concerns about the outlook for the Canadian economy, which is heavily dependent on trade with its US neighbor. Uncertainty surrounding trade relations between the two countries therefore represents an additional headwind for the Canadian Dollar.

Meanwhile, geopolitical developments in the Middle East could provide some support to the Canadian currency through Oil prices. According to Reuters, the US Department of the Treasury is expected to announce on Monday a broader scope for secondary sanctions targeting countries and entities that continue to do business with Iran.

The new strategy is expected to allow the US to sanction certain activities in targeted Iranian sectors and aims to push Tehran’s trading partners to choose between maintaining business ties with Iran and retaining access to the US Dollar-based financial system. US Treasury Secretary Scott Bessent is due to provide further details on Monday.

The prospect of tighter sanctions comes as the conflict involving Iran has disrupted the Strait of Hormuz and Gulf energy exports for nearly six months. A further escalation that restricts energy flows could support Oil prices. As Canada is a major Oil exporter, higher energy prices generally tend to support the Canadian Dollar and could therefore limit further gains in USD/CAD.

USD/CAD technical analysis

In the four-hour chart, USD/CAD trades at 1.3829, keeping a mildly bearish near-term tone as it holds under the downtrend resistance line at 1.3846 and the 100-period simple moving average (SMA) at 1.3929, with the 200-period SMA higher at 1.4009 reinforcing the capped structure. The Relative Strength Index (RSI) around 53 has recovered from earlier oversold readings but now points to more neutral momentum, suggesting that any rebound could struggle while these moving averages remain overhead.

On the topside, immediate resistance is seen at the trend-line area around 1.3846, ahead of the 100-period SMA at 1.3929 and the 200-period SMA near 1.4009, which together define a broader supply band. On the downside, the key structural floor stands at the horizontal support line near 1.3732; a decisive break below this level would likely extend the current corrective phase toward lower figures.

(The technical analysis of this story was written with the help of an AI tool. Know more.)