By Michael O’Neill

Canadians are tired of being blackmailed by the Trump Administration. “Elbows up” didn’t work so it’s time to “drop the mitts and make’em chew chicklets.”

August 19 could be the day the gloves come off.

That is the deadline for President Trump’s threatened 50% punitive tariffs on roughly $20 billion of Canadian goods because Canada retaliated against his tariffs. And it could also be the date Canada’s Chief Trade negotiator tells her American counterpart to “get stuffed.”

It could be the date when the benches clear.

Ms Charette told US Trade Representative Jamieson Greer that imposing the tariffs has consequences and many of which Ottawa can’t control, including the public and provincial government’s reaction, according to the globe and Mail.

Carney backtracked on his government’s cultural streaming sales tax (Netflix tax), Carney bowed to Trump demands for compensation, in order to get the Gordie Howe bridge opened. Carney scrapped the Digital Services Tax after Alphabet, Amazon, and Meta lobbied Trump.

But the provinces did not. All Canadian provinces halted the purchase, distribution or retailing of American alcohol in March 2025 (Alberta and Saskatchewan ended the boycott in June 2025). Many provinces enacted procurement restrictions and banned American companies from participating in provincial contracts.

And neither did the public. Canadians sharply curtailed visits to the US. The decline in Canadian travel to the US accelerated sharply following Trump’s Liberation Day tariffs in April 2025 and has persisted into 2026. Fewer Canadians are crossing the border for shopping, restaurants, hotels, vacations and winter stays. The damage is concentrated in border communities and businesses that depend heavily on Canadian visitors. Estimates of the resulting job losses vary, but even the conservative numbers run into the tens of thousands, with billions of dollars in lost spending.

Trade negotiations are a full contact sport and Team Canada will give as good as it gets. At first glance, that may not be particularly good news for the Canadian dollar, but domestic drama is just one act in a multi-act drama.

Next Door to The Elephant

In 1969 Canadian Prime Minister Pierre Elliott Trudeau said this about America “Living next to you is in some ways like sleeping with an elephant. No matter how friendly and even-tempered is the beast … one is affected by every twitch and grunt.”

USDCAD trading makes that abundantly clear. The US dollar is the global currency of commerce. It is one side of 89.2% of the $9.6 trillion daily foreign exchange turnover according to the Bank for International Settlements (BIS) Triennial Central Bank Survey from April 2025. The Canadian dollar turnover is a rounding error at $492.0 billion.

But there is another side to the USDCAD equation, and it starts with the Federal Reserve.

Majority Rules

The Federal Reserve is often described as divided. It’s not! Not even close.

There are twelve voting members and nine of them opted to leave rates unchanged at 3.75% on July 28. That’s merely disgruntled.

The three that voted for a rate hike fear rising inflation, but the latest nonfarm payrolls report and today’s headline and core Consumer Price Index readings suggest inflation cooled marginally.

Furthermore, July nonfarm payrolls fell by 23,000, while revisions erased another 103,000 jobs from the May and June figures. The average monthly employment gain over the past year is now just 34,000. That is hardly the sort of labour market that argues for higher interest rates.

Then there is oil.

Priming the Pump

WTI around $83 a barrel is still a positive for the Canadian dollar although Canada’s chief crude export Western Canada Select (WCS) trades with about a $10/b discount. Canada is a major energy exporter, so higher crude prices improve the country’s terms of trade and provide support for the Loonie. At least at current levels.

Trump and Iran could blow the current equilibrium off the map. So far the world is managing even with the Strait of Hormuz effectively closed. But that is annoying Trump. His party faces decimation in November if voters continue to have affordability issues which are exacerbated by high gas prices. If Trump reacts in any way that drives prices higher, the three Fed disgruntles may no longer be the minority.

Higher US rates attract investment flows and if those rates are because of increased Middle East hostilities, it will also spark safe-haven demand for greenbacks. The Canadian dollar would become collateral damage.

But that’s the longer-term risk. For now, USDCAD will likely trade in a 1.3750-1.3950 band. The Loonie has taken a few punches, but it’s still standing. Come August 19, we’ll find out who is chewing chicklets.