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Canada-U.S. tariff fight weighs on the loonie as GDP hits 3.3% growth
U.S. tariffs covering about $20 billion of Canadian goods and an expected CPI lift of 0.1–0.3 points are cited as factors that could cool Canada’s near term outlook while the currency weakens after Fed Chairman Warsh’s remarks.
Markets digested a week shaped by both Canada’s economic momentum and renewed strain in Canada-U.S. trade talks, with the loonie trading weaker amid crosscurrents from central bank messaging. Early in the week, the S&P/TSX Composite initially rallied, before losing steam following Fed Chairman Warsh’s speech, and the currency moved lower.
On the growth side, Action Forex highlighted that Canada’s real GDP rose 3.3% quarter-on-quarter annualized in Q2 2026, helped by a reversal of temporary weakness in Q1. Per capita real GDP increased 1.0%, and looking through volatility, the economy grew 1.8% in the first half of the year, supported by strong goods exports, a rebound in business investment, and solid household spending.
The trade developments, however, moved quickly. After Canada suspended trade negotiations, 50% U.S. tariffs on roughly $20 billion of Canadian goods took effect on Saturday, and Canada announced counter-tariffs scheduled to begin after Labour Day.
The outlet estimated the new U.S. tariffs could reduce Canadian GDP growth by 0.3 to 0.6 percentage points over the next year, while Canada’s counter-tariffs could add only marginally to growth but may lift CPI inflation by 0.1 to 0.3 percentage points year-on-year, leaving uncertainty around how negotiations and future tariff threats could affect the outlook.