CAD Bounces on Tariff Reprieve as US Housing Starts Slump

The Canadian dollar weakened through most of the session as markets priced the risk of US tariffs on Canadian imports. A 50% tariff is scheduled to take effect on August 19 unless a last-minute breakthrough occurs. The threat has also shifted expectations for the Bank of Canada. Traders reduced bets on further rate increases, according to overnight-index-swap pricing, as trade uncertainty weighs on the economic outlook.

Geopolitical headlines added another layer. President Trump said no talks with Iran are taking place or scheduled. He confirmed the US naval blockade remains in force but said the Strait of Hormuz is open and mines have been removed or detonated. Iran maintains the strait remains closed until its demands are addressed. The disconnect between the two sides kept oil traders on edge, though crude prices moved little on the session.

The loonie bounced late in the day after a Politico report said Trump was weighing whether to grant Canada a tariff reprieve. The move came as US and Canadian negotiators held last-minute discussions ahead of the midnight deadline. Markets shifted to price a greater probability of a compromise, dealers said. The deadline for the 50% tariff remains August 19.