Canadian dollar pressured by soft CPI, US tariffs

The Canadian dollar has weakened despite signs of a fragile domestic rebound, with oil price dynamics and US rate expectations driving the move as Commerzbank notes improving PMI and exports hinting at a slow real-economy upturn. Analysts warn the BoC’s room for further cuts is limited, keeping USD/CAD elevated as the Fed tightens and market pricing shifts away from Canadian hikes. BBH cautions that softer domestic inflation and the threat of US tariffs weigh on the loonie, suggesting the BoC may stay cautious ahead of any rate cuts. In parallel, TD Securities highlights China’s growth risks and potential stimulus, underscoring how policy support could affect global demand for commodities and risk assets. China’s July data reinforce concerns about domestic demand, with weak industrial production and investment pointer signals for possible September stimulus, a development that could influence global markets including Canada’s commodity links. Domestic Canadian data show a mixed picture, with inflation readings keeping some firmer tone but trade and policy risks continuing to pose headwinds for the currency.