Published on: 2026-08-24
USD/CAD traded near 1.3798 early Monday after Canada-U.S. trade talks collapsed and additional 50% Section 338 duties took effect on roughly US$20 billion of Canadian goods. The modest rebound is less surprising once the timing is considered, since Washington announced the tariffs on July 20 and last week’s CAD rally reflected growing hopes that negotiations would stop or soften them. Monday’s move has so far unwound part of that deal premium, while limited direct exposure and broad U.S. dollar weakness have kept the rebound contained.
The additional 50% Section 338 duties were announced on July 20, more than a month before they took effect on August 22, so the tariff risk itself was already familiar to the market.
USD/CAD’s Bank of Canada daily average fell from 1.3889 on August 18 to 1.3760 on August 21 as deal optimism grew, before the pair rebounded toward 1.3798 on Monday.
The new duties directly cover about US$20 billion of Canadian exports, roughly 5% of Canada’s shipments to the U.S., rather than the entire bilateral trade relationship.
The U.S. dollar remains near multi-month lows against major currencies, offsetting some of the Canada-specific pressure on CAD.
August 28 GDP, the September 2 Bank of Canada decision and Canada’s September 8 counter-tariffs are the next tests of whether the trade dispute produces a larger USD/CAD repricing.
The core tariff threat did not arrive on August 22. The White House announced the Section 338 measures on July 20, imposing an additional 50% ad valorem duty on specified Canadian imports and originally setting August 19 as the effective date. Those duties are generally added to other applicable tariffs, taxes and charges on covered products.
What changed last week was the perceived chance that the tariffs might be avoided or modified through negotiations. Canada said on August 18 that “substantial progress” had been made, and Washington postponed implementation for three days while talks continued.
USD/CAD’s Bank of Canada daily average stood at 1.3889 on August 18, before falling to 1.3824 on August 19, 1.3785 on August 20 and 1.3760 on August 21. Reuters also recorded an intraday low of 1.3757 on August 20 as higher oil prices, a weaker U.S. dollar and trade-deal hopes supported CAD.
The talks then collapsed on Friday, and the tariffs remained in place. Monday’s move back toward 1.3798 is better read as a partial reversal of last week’s deal optimism than as the market pricing an unknown 50% tariff shock for the first time.
The tariff rate is severe for products caught by the measures, although its direct reach is much narrower than a blanket 50% levy on Canadian exports.
Canada puts the affected trade at roughly C$28 billion, equivalent to about US$20 billion. Reuters estimates the measures cover around 5% of Canadian exports to the United States.
The Section 338 proclamations cover specified goods across several groups, including wine, dairy products, furniture, cement, clothing, fishing equipment and hockey products. The latest measures exclude energy, potash, goods already subject to Section 232 tariffs, and certain other products, including fish and critical minerals.
For covered products, the White House describes the measure as an additional 50% duty, generally imposed on top of other applicable duties and charges. Covered goods also do not receive an exemption simply because they otherwise qualify under the USMCA.
Canada plans dollar-for-dollar counter-tariffs from September 8, with detailed product measures still being finalised. The legal start date does not mean the economic response begins that morning, since companies facing higher future costs can alter orders, inventories, pricing and investment beforehand.
Reuters reported the Canadian dollar down about 0.2% at C$1.3798 per U.S. dollar early Monday, while the greenback hovered near multi-month lows. The Australian and New Zealand dollars remained near three-month highs, EUR/USD traded around $1.1685, and the yen stayed stronger than 159 per dollar.
That broader dollar weakness is limiting the impact of the Canada-specific trade shock on USD/CAD. A simultaneous rally in the U.S. currency would add another source of upside pressure to the pair, whereas Monday’s market has produced the opposite combination.
The first FX response is consequently being shaped by three forces at once. The tariff risk was already known; only a limited portion of Canadian exports is directly covered, and the currency on the other side of USD/CAD remains weak.
A larger CAD repricing becomes easier to justify if the trade dispute begins showing up in hiring, investment and growth rather than remaining concentrated in directly affected industries.
Employment increased by 75,000 in July, while unemployment fell to 6.4%, its lowest level since July 2024. Private-sector employment rose by 58,000.
These figures predate the latest escalation and cannot show its effect. They do indicate that the labour market entered the renewed dispute with more momentum than earlier in the year, although the Bank of Canada still describes the economy as operating with excess supply after a prolonged period of weak growth.
Evidence that tariff-exposed businesses are reducing hiring or investment would give currency markets a clearer reason to price in a broader economic hit.
Headline Canadian CPI reached 3.0% in July, yet inflation excluding gasoline remained at 2.2%. The Bank of Canada had already stressed in July that elevated headline inflation was driven mainly by energy, while core inflation measures were close to 2%.
The Bank has held its policy rate at 2.25% and meets again on September 2. Its July outlook expected inflation to ease as oil and gasoline prices declined, while continued economic slack was putting downward pressure on other prices.
The renewed trade dispute complicates that outlook from both directions. Weaker exports, hiring or investment could weigh on growth, while Canadian counter-tariffs and higher import costs could add price pressure in affected categories. The BoC now has to assess those risks against underlying non-energy inflation, which is much closer to target than the 3.0% headline rate suggests.
No. The White House says products covered by the Section 338 measures face the additional 50% duty even when they would otherwise qualify as originating goods under the USMCA.
Energy, potash, products already subject to Section 232 duties and certain other goods, including fish and critical minerals, are excluded from the latest Section 338 tariffs.
Yes. Evidence of weaker Canadian growth, softer employment, prolonged trade disruption or a meaningful shift in Bank of Canada policy expectations could produce a larger CAD adjustment than Monday’s initial move.
Statistics Canada’s advance industry data point to roughly 0.8% quarter-on-quarter growth in Q2, while the Bank of Canada’s July forecast put expenditure-based GDP growth at 2.5% at an annualised quarterly rate. The two figures use different conventions and GDP frameworks, and the official second-quarter estimate on August 28 will replace the preliminary picture before the BoC’s September 2 decision.
Canada’s counter-tariffs formally begin on September 8, although orders, inventories, and pricing can start adjusting before then. USD/CAD has so far mainly unwound part of last week’s deal premium. A larger repricing needs evidence that the trade dispute is spreading from tariff lists into the broader Canadian economy.
