By Michael O’Neill
It’s peak barbecue season in Canada and the USA. Backyard chefs are sipping cold beverages while creating culinary masterpieces over charcoal, propane, or natural gas. Hamburgers, hot dogs, and steaks are the usual fare. This there is something else on the grill. The Loonie.
The Main Course
On Monday, Trump signed off on a fresh round of punishment aimed squarely at Canada. Motor vehicles now face an additional 50 percent duty starting August 19, with alcohol and dairy getting matching treatment. These are Section 338 tariffs, a Depression-era authority that requires a finding that a specific country is discriminating against US commerce. Trump is annoyed about a roughly 22 percent drop in US auto exports to Canada over the past year. It was his fault. His own tariffs forced automakers to restructure their supply chains, reducing US auto exports in the process.
That’s not all. Trump’s proclamation stated that he found “that it is necessary and appropriate and in the public interest to impose an additional ad valorem duty of 50 percent on certain products of Canada.”
Natural honey. Tulip bulbs. Wigs and false eyebrows made of synthetic fibre. Coin-operated arcade games. Antique paintings and sculptures more than a century old. Stuffed goose down. All were targeted for the levy.
This is not the behaviour of a country retaliating against a strategic threat. It is the antics of a man looking to deflect attention from his plunging poll numbers and the multi-billion-dollar quagmire with Iran.
Another Helping
US Trade Representative Jamieson Greer told the Senate Finance Committee this week that another wave of tariffs are coming within days, under the authority of Section 301. This round replaces the illegal “Liberation Day” boondoggle and targets 59 countries. In Trump’s mind, these countries benefit from forced labour practices in supply chains. Canada gets hit with that too.
Homegrown Tariffs
While Trump gets ready to carve the Loonie, the IMF has offered Ottawa a way to dull the blade. A report from January 27, 2026, argues Canada needs to stop tariffing itself. Internal trade barriers, licensing rules, procurement quirks and service regulations add up to the equivalent of a 9 percent national tariff.
By simply eliminating those barriers, the IMF estimates the long run GDP gain at nearly 7 percent, something in the neighbourhood of CAD$210 billion.
The punchline writes itself. Ottawa spends its diplomatic energy trying to talk Washington out of a targeted 50 percent tariff on autos while sitting on a homegrown 40 percent tariff on healthcare workers who want to practice in a different province.
Turning Up the Heat
The Loonie can get badly burned if the Middle East war escalates further and now Trump is approaching a crossroads. He needs to decide if he will pursue another ceasefire or launch a full-scale attack and the pressure is mounting.
With the US midterms approaching, Trump’s popularity continues to slide as gasoline prices rise. Even so, oil prices have shown remarkable restraint. Arguably if traders believed a full-blown war was about to happen, WTI would be north of $100.00/b instead of its current price of $86.30. As it stands now, the odds of that happening before year end are just 29% on Polymarket (the world’s largest prediction market).
Medium Rare
USDCAD is pressing higher but still well below the 2026 high of 1.4240, comfortably above both the 100 and 200 daily moving averages (1.3882 and 1.3855, respectively) with momentum readings firm but not yet stretched.
That looks like confidence in the greenback but dig into the positioning data and it reads more like a crowded trade that is running on fumes.
CFTC figures through July 14 show leveraged funds net short roughly 93,500 Loonie contracts, adding to those bets even as prices topped out. Asset managers, the slower-moving institutional money, did the opposite, trimming their own CAD short. When the fast money keeps piling in while the patient money starts easing out, the trade is usually closer to exhausted than it looks.
There is also a noticeable absence of panic elsewhere. AUDJPY, the cleanest read on global risk appetite going, has spent the summer grinding higher on shrinking volatility, no sign of the broad flight to safety that would normally accompany a currency carrying two separate tariff regimes while its biggest trading partner has not bothered to schedule a phone call.
A genuine crisis in Canadian assets should be showing up as stress somewhere else in the risk complex. It isn’t.
Put it together and it suggests that the upside is very well capped. Sure, it could still rise to 1.4250. A better argument can be made for a slide back to 1.3850. That happens if either tariffs or Iran cool.
Crowded shorts do not need good news to unwind. They just need slightly less bad news than they were braced for.
That suggests that the Loonie will only get grilled to medium rare, rather than burnt to a crisp.
