Canadian Dollar Drops to Four-Month Low as Oil Prices Decline and Trade Concerns Rise

The Canadian dollar, known as the Loonie, fell to its lowest level in more than four months this week as oil prices tumbled and renewed concerns emerged over trade talks between the United States, Mexico, and Canada.

On Thursday, the Loonie slipped 0.2% against the U.S. dollar, trading near 1.3960, or roughly 71.63 U.S. cents, after touching an intraday low of 1.3986 — its weakest point since mid-May.

According to currency analysts, the sharp drop in oil prices, one of Canada’s top exports, played a major role in the currency’s decline. Oil settled 2.1% lower at $60.48 per barrel, weighed down by fears of oversupply ahead of a key OPEC+ meeting scheduled for the weekend.

“It’s no surprise the Canadian dollar weakened alongside oil,” said Adam Button, Chief Currency Analyst at InvestingLive. “Markets are clearly nervous about OPEC and what could happen next.”

USMCA Uncertainty Adds to Market Caution

Traders are also watching closely as negotiations around the U.S.-Mexico-Canada Agreement (USMCA) approach. The pact, which plays a vital role in protecting Canadian exports from U.S. tariffs, is set for a joint review in 2026.

Recent public consultations have already begun across all three countries, sparking debate about whether the next round of talks will go smoothly.

“The market is finally waking up to the risks around the USMCA,” Button added. “It’s hard to imagine a completely smooth negotiation process.”

Concerns about a potential U.S. government shutdown also boosted the U.S. dollar, adding further downward pressure on the Canadian currency.

Analysts Expect Moderate Recovery Ahead

Despite the current weakness, a recent Reuters poll suggests that the Canadian dollar may strengthen over the next year as the U.S. Federal Reserve is expected to cut interest rates, which could weigh on the greenback.

However, analysts warn that renewed trade tensions or setbacks in USMCA discussions could delay or limit that recovery.

Bank of Canada Reviews Inflation Metrics

In other economic developments, the Bank of Canada is reportedly exploring ways to refine how it measures inflation. Deputy Governor Rhys Mendes said the central bank aims to better understand how external shocks, such as energy price swings, affect the broader economy.

Meanwhile, Canadian government bond yields eased slightly across the curve, with the 10-year yield dipping 1.8 basis points to 3.167%.

Key Figures at a Glance