The Canadian dollar pushed past 73 cents U.S. on Monday on the rising chances of the Bank of Canada holding interest rates this week as rising tariff risks weaken the greenback.
The loonie broke through 73 cents U.S. for the first time since October 2024, continuing an ongoing reversal of fortune against its United States counterpart.
The Canadian dollar is now up six per cent from an almost 10-year closing low of 68.8 cents U.S. on Jan. 31.
“Factors continue to shift in favour of a slightly stronger (Canadian dollar),” Shaun Osborne, chief currency strategist, and strategist Eric Theoret at the Bank of Nova Scotia, said in a note, adding that “a cautious hold from the (Bank of Canada) may help the (Canadian dollar) progress and solidify topside (U.S. dollar) resistance.”
The Bank of Canada will announce its next interest rate decision on Wednesday.
Markets are currently betting that there is a 30 per cent chance of a cut at the meeting, with Royal Bank of Canada and Bank of Montreal abandoning their calls for a 25-basis-point rate cut following the release of stronger-than-expected gross domestic product numbers for the first quarter.
Now, BMO is calling for the Bank of Canada to cut rates at its policy meeting at the end of July.
A rate hold should provide support to the Canadian dollar, while a cut would make the loonie less attractive to investors.
Meanwhile, the U.S. dollar started off June on the back foot, giving the loonie another boost.
“The dollar is back on the defensive as June begins, retreating amid a worsening in trade tensions between the United States and its global counterparts,” Carl Schamotta, chief market strategist at Corpay Currency Research, said in a note.
On Friday, U.S. President Donald Trump announced he would increase tariffs on steel and aluminum to 50 per cent from 25 per cent currently.
That move plus resurgent trade tensions between the U.S. and China have pushed the greenback down against a basket of currencies that include the Canadian dollar.
On Monday, the U.S. dollar index hit its lowest point since April.
The index had been on a tear after polls started to track Trump’s rising chances of winning the presidency and peaked in mid-January. Since then, the index is down just a bit more than 10 per cent as the president’s tariff threats hurt the economic outlook.
Although the Canadian dollar has been gaining ground on the U.S. dollar, it’s still down against all G10 currencies aside from the greenback since mid-January due to Canada’s exposure to the American economy.
