US FX WRAP: Loonie lags as Trump announces new Canadian tariffs
The Dollar Index saw strength on Monday, and gained, albeit to varying degrees, against G10 FX peers. The Loonie was the G10 laggard, and came as US President Trump formally announced new 50% tariffs on Canadian autos, auto parts and steel from 1st January 2027. Elsewhere, the most notable headlines were on the US/Iran footing and the accompanying Treasury Secretary Bessent press conference in otherwise thin newsflow. Briefly recapping, Bessent announced Operation Economic Outcast on the Iranian economy, and threatened any further enablers of the Iranian economy. In the US morning, CNBC reported that Bessent could tap near USD 1tln treasury general account to fund bond buybacks, which garnered slight weakness in the Buck. There was no tier 1 US data or Fed speak on Monday, with the highlights this week being Nvidia earnings (Wed) and Fed Chair Warsh at Jackson Hole (Fri).
As mentioned, aside from the lagging Loonie, losses across G10 peers vs. the Dollar were more contained. GBP and EUR saw slight losses, while Antipodeans were the next worst performers, although in pretty thin currency-specific newsflow and more trading off the wider risk tone. For the single-currency Euro, ECB's Cipollone said that monetary policy needs to be well calibrated; inflation is far from adverse & severe scenarios and that there are no signs pointing to a scenario of stagflation.
Tariff announcements against Canada have historically hit the Loonie on headline risk rather than on trade-flow arithmetic: USD/CAD gaps on the announcement, then partially retraces once the effective date, exemptions and carve-out process become clear. A start date well into the future, as flagged here, fits the pattern of measures that function more as negotiating leverage than as imminent cost, which is why the move in CAD has tended to be the sharpest leg but also the most prone to reversal. The broader session is the familiar mix: a firmer Dollar across G10 with losses elsewhere contained, consistent with risk-driven rather than currency-specific flow. The reported possibility of the Treasury general account being drawn down for buybacks is worth noting, since TGA drawdown adds reserves to the system and has on past occasions leaned mildly against the Dollar and against term premium, which matches the soft response described. The calendar is the follow-on: Nvidia earnings as the equity risk barometer and the Jackson Hole appearance as the week's policy signal, with tariff implementation detail and any Canadian response the tell for whether the CAD discount sticks.