US/Canada Trade Talks Collapse - Carney Vows To Retaliate Dollar-for-Dollar

OVERVIEW : Monday, August 24th, 26’

Trump reiterated warnings against countries providing Iran with a lifeline, while the US Treasury sanctioned nearly 60 Iran-linked entities, people and vessels across nuclear, missile, cyber and oil networks. Bessent described the measures as “Operation Economic Outcast” and signalled that further sanctions, including action against a major financial institution, are expected. Iran responded by warning that continued economic warfare could lead to a complete halt in oil exports from the Persian Gulf, while reports that Trump had sought Pakistan’s influence to restart negotiations provided a limited diplomatic counterweight. Despite the escalation, WTI and Brent fell around 2% on the day, suggesting the market was not pricing an immediate physical supply disruption. US-Canada trade discussions collapsed unexpectedly. Canadian PM Carney vowed to retaliate with dollar-for-dollar 50% tariffs on US goods from September 8th. Gold remained elevated around USD 4,600, returning toward levels last seen in May as renewed investment demand and concerns over the US fiscal outlook continued to support precious metals

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US DOLLAR

The Dollar started the week on a firmer footing, with demand broadening across the G10 and USD gaining against its major peers to varying degrees.

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EURO

EUR remained marginal on the day, with the single currency lacking a clear driver or catalyst to generate meaningful directional momentum. ECB's Cipollone provided little fresh impetus, noting that monetary policy needs to remain well calibrated and that inflation remains far from an adverse or severe scenario, while seeing no signs of stagflation.

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GREAT BRITISH

POUND Sterling’s performance remained carry-driven, with the currency holding its advantage as investors continued to favour the higher-yielding profile. With no additional catalyst provided, the move remained primarily a function of relative carry rather than a fresh domestic repricing.

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AUSTRALIAN DOLLAR

AUD saw mixed performance on the day, with two-way price action ultimately leaving the currency broadly flat into the close.


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CANADIAN DOLLAR

CAD underperformed on the day, emerging as the clear G10 laggard after US-Canada trade discussions collapsed unexpectedly. Canadian PM Carney vowed to retaliate with dollar-for-dollar 50% tariffs on US goods from September 8th, sharply escalating the trade dispute and increasing concerns around the economic impact on Canada. Markets are now facing the prospect of a prolonged trade war, with Canada warning the dispute could extend beyond the US midterms. The threat of sustained 50% tariffs and the deterioration in the US-Canada trade relationship weighed heavily on CAD

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NEW ZEALAND DOLLAR

NZD saw mixed performance on the day, with the currency ultimately closing flat. New Zealand retail sales fell 0.5% QQ in Q2 vs. Exp. +0.1%, while annual growth slowed to 3.3% from 4.5%

Data:

  • New Zealand Retail Sales (Q2 YY) 3.3% (Prev. 4.5%).
  • New Zealand Retail Sales (Q2 QQ) -0.5% vs. Exp. 0.1% (Prev. 0.9%).


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JAPANESE YEN

JPY saw subdued performance on the day, with the currency failing to attract meaningful demand despite markets increasingly pricing a September BoJ rate hike, with expectations now around 80%.

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SWISS FRANC

CHF failed to attract meaningful demand on the day, with the safe havens underperforming as USD caught the bid.