The Canadian dollar is under increasing pressure as softer domestic inflation and renewed US tariff threats create a challenging environment, according to separate notes from Brown Brothers Harriman and TD Securities.
BBH: Soft inflation gives the Bank of Canada room to ease
Canada’s Consumer Price Index rose 2.7% year-over-year in April, down from 2.9% in March and below the 2.8% consensus forecast. Core inflation measures also eased, suggesting that underlying price pressures are moderating. The softer print reduces the urgency for the Bank of Canada to keep policy restrictive, and markets are now pricing a higher probability of a rate cut at the next policy meeting in June. Lower Canadian rates would make Canadian assets less attractive to yield-seeking investors and typically weigh on the currency.
US tariff threats remain a wildcard
The US administration has repeatedly floated tariffs on Canadian imports, particularly steel, aluminum and softwood lumber. Brown Brothers Harriman said the combination of easing inflation and external trade risk is a “negative mix” for the loonie. If the Bank of Canada moves toward easing sooner than the Federal Reserve, the widening interest rate differential could push USD/CAD higher. The pair was trading around 1.36, up from 1.34 a month ago.
TD Securities: Data and tariff headlines to drive near-term swings
TD Securities analysts echoed the cautious tone, flagging domestic data and tariff-related headlines as key risks. They said the Canadian dollar is likely to react sharply to inflation figures, employment reports and any new trade policy announcements from Washington or Ottawa. As a commodity-linked currency, the loonie is also exposed to shifts in oil prices, adding another layer of uncertainty.
Looking ahead, traders will watch Canadian GDP, employment and inflation readings, along with US non-farm payrolls and CPI. Businesses with cross-border exposure may need more dynamic hedging strategies, while investors should prepare for elevated volatility in USD/CAD as data and political events unfold. The overarching conclusion is that the Canadian dollar remains sensitive to both the Bank of Canada’s policy path and the evolution of US trade policy.
