By Michael O’Neill

The Canadian dollar is getting no love—it’s as popular as a fur coat at a PETA convention. The Loonie is the worst performing major G-10 currency since the beginning of August and for good reason. Investors appear to have adopted a “sell-Can-AM” strategy because both countries are suffering from weak employment and falling inflation. The Loonie gets an additional beating because Trump’s tariffs put the country at a disadvantage and there is little that the Mark Carney government can do.

Recession Risk

Canada is flirting with a recession—the job market is cratering, the economy is shrinking, and the Bank of Canada highlighted a widening output gap. Canada lost 65,500 jobs piling on to the 41,000 that disappeared in July while the unemployment rate jumped to 7.1%.

GDP shrinking: Q2 GDP contracted 1.6% year-over-year, confirming what everyone suspected—it’s because of US President Trump and his reckless use of tariffs and “National Emergency” declarations. That environment crushed exports and choked off business investment. Adding insult to injury, China is slapping tariffs of between 75.8% and 100% on canola, canola oil and peas. That has really pea’d off Saskatchewan and B.C. growers.

The recession risk is weighing on the Canadian dollar but escalating geopolitical tensions are just as pressing.

Geopolitics May Bite

The global financial market landscape is pockmarked with potholes and pitfalls, and the Loonie scrambling for somewhere safe to land.

This week’s news should really unsettle traders.

NATO has been alerted after Russian drones crossed into Polish airspace and were then shot out of the sky.

In the Middle East, Qataris were rudely awakened by sounds of an Israeli airstrike in Doha that took out senior Hamas terrorists being coddled by Qatari leaders.

In Washington, President Trump delivered an ominous message of peace to the world when he renamed the Department of Defence, the Department of War.

To prove he wasn’t joking, he ordered the military to obliterate a Venezuelan pleasure boat cruising international waters. The official story was “drug smugglers.” The reality looked more like murder—no arrests, no trial, no justice. And America doesn’t even have a death sentence for smuggling drugs.

Back in the day, any one of those events would have preceded a stampede into safe-haven currencies, like the Swiss franc, Japanese yen and the US dollar. But that didn’t happen—traders just have eyes for the Fed.

Feeding Frenzy on Jay Powell

Fed Chair Jerome Powell may feel like a wound zebra, surrounded by a pack of ravenous hyenas.  President Trump is leading the anti-Powell charge. On TruthSocial, Trump pounced on the latest Producer Price Index release: “Just out: No Inflation!!! ‘Too Late’ must lower the RATE, BIG, right now. Powell is a total disaster, who doesn’t have a clue!!!” It’s just the latest volley in a long campaign of slurs, insults, and even lawsuit threats aimed at Powell.

Treasury Secretary Scott Bessent joined the pile-on with a Wall Street Journal op-ed branding the Fed’s post-2008 policy experiments—QE, near-zero rates, balance sheet bloat—as a reckless “gain-of-function” experiment. He’s calling for an independent review and a return to simpler, more traditional monetary tools.

Inside the Fed, the knives are out too. Governors Michelle Bowman and Christopher Waller have openly echoed Trump’s calls for deep cuts. Waller, on Trump’s shortlist for Powell’s job, is especially eager. Trump moved against Governor Lisa Cook for “mortgage fraud,” but a federal judge ruled the alleged misconduct wasn’t cause for dismissal. Still, her Trump-backed replacement is expected to be confirmed Monday, suggesting Cook’s days are numbered.

Powell’s Timely Pivot

Powell may have read the writing on the wall—or the BLS data. His Jackson Hole speech marked a sharp turn: inflation concerns faded, while the employment market took center stage. Days later, the Bureau of Labor Statistics revised job growth down by 911,000 for March 2024–March 2025. And in August, producer prices fell 0.1%.

Markets cheered. The S&P 500 notched fresh highs, and the U.S. 10-year Treasury yield slid from 4.33% before Powell’s speech to 4.05%.

For now, Powell’s pivot buys him time. But with Trump circling and allies sharpening their knives, the feeding frenzy is far from over.

Loonie-Ready, Aim, Fire

The Canadian dollar is caught in the crossfire—hammered by recession fears at home, tariffs abroad, and a Fed under siege. Traders may laugh at Powell’s predators or Trump’s tantrums, but the Loonie won’t find shelter. It’s a target, not a haven, in today’s global shooting gallery, and there are more bad days in its future.