The loonie is rallying. Here’s why top currency watchers don’t think it will last

The loonie was already rallying before Trump announced the tentative deal, mostly due to data suggesting the Canadian economy rebounded in Q2 of 2026. Photo by Brent Lewin/Bloomberg

Article content

The languishing Canadian dollar flirted with the 73 cents US mark this week after United States President Donald Trump announced that Canada and U.S. had reached a tentative trade deal Tuesday evening, but currency watchers are warning the rebound may be short-lived.

Article content

This week’s move, in which the loonie hit 72.8 cents US before falling back Friday to trade around 72.64 cents US, capped a two-month run that has seen the dollar rise more than 2.6 per cent from it’s June lows of close to 70 cents US.

Article content

Article content

Article content

But as Canadian and U.S. negotiators met to finalize details of the deal ahead of the Saturday deadline, loonie watchers were reluctant to attribute much of the recent strength to the prospect of a deal.

Article content

Article content

Karl Schamotta, chief market strategist at Corpay Cross-Border Solutions, said the Canadian dollar’s moves were primarily driven by the bond buyback announcement on Wednesday, when U.S. Treasury officials announced that it would be doubling buyback operations — from US$2 billion to US$4 billion — for longer-dated bonds, which weakened the U.S. dollar.

Article content

“Broadly speaking, what’s happening to the U.S. dollar is overwhelmingly the driving force in what’s showing up in the Canadian dollar exchange rate right now,” he said.

Article content

David Rosenberg of Rosenberg Research and Associates noted that the loonie was already rallying before Trump announced the tentative deal, mostly due to a string of data releases suggesting the Canadian economy rebounded in the second quarter of 2026.

Article content

The Canadian dollar’s strength this week could also be due to a recent spike in global oil prices as tensions re-escalate in the Middle East, he said. Brent crude, the international benchmark, rose by about two per cent to more than US$93.5 per barrel on Thursday. West Texas Intermediate crude, the U.S. benchmark, rose to US$86.54 per barrel.

Article content

Article content

“If the oil price hadn’t bounced back in the past several weeks, now that this ceasefire proved to be fake, the Canadian dollar wouldn’t be trading where it is right now,” Rosenberg said.

Article content

Article content

Both Rosenberg and Schamotta are skeptical that the loonie’s strength will last.

Article content

Schamotta said there is still significant trade uncertainty tied to the Canada-U.S.-Mexico Agreement (CUSMA), which was not renewed by the Trump administration and is now subject to 10 years of rolling annual reviews. That ongoing uncertainty will still force Canadian businesses to hold back on investing and hire fewer employees, while consumers will continue to be more prudent with their spending.

Article content

“We are seeing warmth in a number of economic indicators, everything from gross domestic product growth to employment to trade.… But we also have very major downside risks, and those downside risks are really going to be priced into the Canadian dollar in the form of a risk discount for a prolonged period here,” Schamotta said in an interview.

Article content

Article content

“In the near term, the devil is in the details.”

Article content

Rosenberg said tariffs won’t go away even if Trump and Prime Minister Mark Carney sign a new trade deal. Canada’s steel, aluminum and auto sub-sectors will still face stiff Section 232 tariffs that have led to job losses and uncertainty in the manufacturing sector.