Newsletter · · Ashutosh Agarwal

The Canada Deal Collapsed and the Loonie's Tariff Cloud Is Back - Commodity FX: AUD, CAD, NOK & NZD - Week of August 29, 2026

Commodity FX for the week ending August 29, 2026. Podcast synthesis on the US and Canada trade deal collapsing with 50 percent tariffs live from August 22 and Canadian retaliation due September 8, a trade lawyer warning that retaliating is what unlocks a US embargo power, an economist pegging the hit at up to 90,000 Canadian jobs, the biggest four-week dollar drop since early 2025, and China printing balance-sheet-recession data while copper sits near a record.

Commodity FX: AUD, CAD, NOK & NZD

Week of August 29, 2026: The Canada Deal Collapsed and the Loonie's Tariff Cloud Is Back

A week ago this letter led with a headline that now looks embarrassing: Canada caves, signs a deal. On the strength of what the podcasts were saying last weekend, that was the right call. A tentative agreement was on the table, the tariff cloud that had hung over the Canadian dollar for eighteen months looked ready to lift, and even JPMorgan's FX desk had gone from bearish on the loonie to merely neutral.

Then the whole thing fell apart.

At one minute past midnight on Saturday, August 22, President Trump's 50% tariffs on roughly $20 billion of Canadian goods went live. Prime Minister Mark Carney answered with matching, dollar-for-dollar tariffs of his own, due to bite on September 8. America's trade negotiator said there are no more talks planned. Trump posted that "Canada wants state benefits without being a state." In the space of a few days, the biggest positive story in this bloc became its biggest negative one.

TL;DR

  • The Canada and US deal is dead. The 50% tariffs took effect August 22; Canada is retaliating dollar-for-dollar from September 8; the US says no new talks are scheduled. The tariff risk premium that was draining out of the loonie last week just flooded back in.
  • The retaliation may be a trap. A trade lawyer who has read the fine print says the US order lets Trump embargo Canadian goods at the border, but only if Canada retaliates. Dollar-for-dollar is "math, not strategy," and a Bank of Canada study says last year's version of it hurt Canadians more than Americans.
  • The damage is narrow but deep. An economist pegs the hit at up to roughly 90,000 Canadian jobs if the tariffs stick, pushing unemployment from 6.4% toward 6.8%, with a chunk of the pain landing in provinces the tariffs barely touch, like Alberta.
  • The dollar keeps sliding, and that's the bloc's lifeline. MUFG's research head clocked the biggest four-week drop in the dollar since early 2025 and thinks the next leg of a weaker-dollar policy shows up in currencies. A soft dollar is the one thing propping this whole exporter-FX group up.
  • China looks worse, not better. Fresh data: investment down 6.7%, retail sales up just 0.6%, property investment down 19% year over year, "a classic balance sheet recession." Chinese dairy buyers are stepping back too. That's the ultimate customer for Australia's ore and Canada's crude going quiet.
  • Copper is still the bright spot. It sits near an all-time high around $6.87 a pound, the copper-miners ETF jumped 10.4% on the week, and the structural shortage story got another airing.
  • New Zealand got one real data point: dairy prices firmed at the global auction, but a strengthening El Niño threatens the milk supply.

What's new

The deal died at midnight. The clearest running account came from Reuters' daily news podcast across two days. On Reuters World News (Aug 22), the news was that the 50% duties on about $20 billion of Canadian goods had gone into effect at midnight "after being deferred earlier this week." By Reuters World News (Aug 23), Carney was on record: Canada will match Washington "dollar-for-dollar in order to protect Canadian workers, farmers, families and businesses," with tariffs on US steel, electronics and other products set to hit September 8. US Trade Representative Jameson Greer called the breakdown "a missed opportunity for Canada to partner with the United States" and said no new talks are planned. Ontario Premier Doug Ford didn't reach for diplomatic language: Trump, he said, "can't be trusted… the type of person that would steal your lunch money the first day. He'd steal the toque off your head the second day and the third day he'd steal your running shoes."

Why it broke, and why the fine print matters. The most useful forty minutes came from a Canadian trade lawyer, not a strategist. Barry Appleton, a professor at New York Law School who helped shape the last North American trade deal, laid out the real story on Cost of Living (Aug 21). His argument, in plain terms:

The deal fell apart over sovereignty, not price. Buried in the existing trade pact (CUSMA) is a clause that effectively gives the US a veto over Canadian economic policy toward "non-market economies," code for China. When Canada opened up to Chinese EVs, "the Americans went nuts on us." Appleton's blunt read: "there's no other country in the world that agreed to let the U.S. have a veto on its economic policy, but Canada and I guess Mexico… this is not what a grown-up country does… That's what a colony does."

Then the part every loonie holder should sit with. Appleton says he read the actual US order (issued under an obscure 1930s trade law), and it contains a penalty clause that only triggers if Canada fights back: Trump can't legally raise the tariff any higher, since it's maxed at 50%, but he can "block Canadian goods at the border." In other words, retaliation hands Washington the power to embargo Canadian products outright. That's why Appleton thinks dollar-for-dollar is "math… but it's not strategy," pointing to a Bank of Canada study from June that found last year's retaliation "didn't work against the Americans," "cost a lot more for Canadians," and "disrupted supply chains." His advice: skip the blunt instrument and go for choke points the Americans themselves flagged, namely energy, potash, and, oddly, fish (Maine lobster is processed in Canada, and there's a tight Senate race there). The alcohol ban worked last time, he noted, "because it got their attention."

Dollar-for-dollar tariffs is math. But it's not strategy.

What it costs in jobs. On Hub Podcasts (Aug 21), economist Trevor Toome put numbers on the human side. The tariffs only lift the average effective rate on Canadian exports by about 2.5%, small in aggregate. But if they stick, he estimates around 52,000 jobs directly at risk and another 35,000 in suppliers and services, roughly 87,000 to 90,000 in total, enough to push unemployment from 6.4% toward 6.8%. The twist that matters for how angry this gets politically: the pain doesn't stay where the tariff lands. Ontario and Quebec take the direct hit (effective rates up about 5 points, BC about 7), but Alberta, whose exports are barely touched and up just half a point, still loses around 9,000 jobs, because its service firms feed exporters elsewhere. A tariff aimed at Ontario's factories still bleeds Calgary's trucking and warehousing.

You could already see it in real time. On the ground in Quebec, David Janot, operations director at steelmaker Cevaco, told Reuters World News (Aug 22) that "orders went down around 25-30% in less than a week," adding the line this whole saga keeps proving: "it's not only the tariffs, it's the uncertainty that comes with it."

The dollar's slide is the bloc's lifeline. Here's the counterweight to all the Canada gloom. The US dollar is falling, and for a group of commodity currencies, a soft dollar is oxygen. The sharpest read came from Derek Halpenny, head of EMEA research at Japanese bank MUFG, on The MUFG Global Markets Podcast (Aug 21). The dollar, he noted, had just fallen "nearly 3%" over four weeks, "the biggest over that period since the period after Liberation Day, 2025," and both of those episodes were kicked off by US dollar policy itself, which "fuels that perception that there is this kind of underlying wish for the Trump administration to want a weaker dollar" to shrink the trade deficit. His key point for us: if the Treasury manages to hold long-term yields down, "the next lever… likely to be reflecting those manipulations would be FX." Translation: a government that wants both low yields and a weak dollar will let the currency do the adjusting. That's structurally good for the exporters this letter tracks.

He wasn't alone. On Saxo Market Call (Aug 21), Saxo's strategists flagged the dollar "lower" and, in the one genuine Aussie data point of the week, noted "it makes a lot of sense to see Aussie coming in bid here a bit more strongly… with these metals prices ripping higher," even after employment data "the market didn't like earlier this week." Meanwhile InvestTalk (Aug 21) pegged the dollar index at four-year lows, and on The David Lin Report (Aug 21), strategist Peter Boockvar said he is "not bullish on the dollar," citing a slow diversification of global trade and capital flows away from it. The tone across the week was consistent: the dollar is the soft spot, and that's what keeps this bloc afloat.

But the tariff war isn't really shrinking. A useful reality check came from policy analyst Don Schneider on What's Next For Markets (Aug 23). Even though a Supreme Court ruling struck down Trump's broad tariff authority, dropping the effective US tariff rate from about 10% to 7%, Schneider expects it to climb right back to 10% through a different legal route (a pending "excess manufacturing capacity" investigation, probably held until after the midterms). "It's just a lot of legal machinations to get back to the exact same place," he said. Tariff revenue has already risen by roughly $220 billion versus the pre-Trump baseline, and the federal deficit is running around $2.1 trillion, about 6.25% of GDP, with "no fiscal consolidation" in sight. The point for currency watchers: the tariff regime is a permanent fixture, not a passing storm, and the deficit that's weighing on the dollar isn't going away.

China keeps getting worse. The demand side of this whole complex looks shakier by the week. On The Loonie Hour (Aug 21), the hosts ran through fresh Chinese numbers, investment down 6.7%, retail sales up a feeble 0.6%, and real estate investment down 19% year over year, and called it what it looks like: "a classic balance sheet recession in China," with Chinese bond yields falling even as everyone else's rise. (One bright spot they flagged for Canada itself: the newly announced Churchill Falls clean-energy mega-deal, which they called "unambiguously positive," adding "Canada should be filthy, filthy rich… very few people and lots of water.") The dairy market told the same China story from another angle: on Let's Chat Dairy (Aug 21), HighGround Dairy analysts said Chinese imports "pulled back across the board" in July, with "demand… struggling."

Copper stays the exception. Amid all the worry, one commodity refuses to break. On In it to Win it (Aug 23), the technical read was copper sitting just below an all-time high around $6.87 a pound, with the copper-miners ETF up 10.4% on the week. And on The KE Report (Aug 22), newsletter writer Chris Temple re-made the structural bull case: between now and 2050 the world will need "as much copper as has been mined in recorded history," and, contrary to the AI hype, only about 4% of that demand is AI-related, with "the other 96%" being basic electrification, power grids and infrastructure. He's cautious near-term (he wouldn't "buy with both hands," expecting an eventual credit-cycle "version of a 2008"), but the long-run scarcity story is intact.

The debate

This week the tape did not offer a clean bull-versus-bear shootout across the whole bloc. It offered one big negative shock (Canada) sitting on top of one steady positive (a sliding dollar), with China quietly pulling the other way.

The bull case (a weak dollar carries the group). This is the case with the most credible backing this week. MUFG's Halpenny thinks the Trump administration quietly wants a weaker dollar and will let currencies do the adjusting if yields are pinned (MUFG, Aug 21); the dollar is already at four-year lows (InvestTalk, Aug 21); the Aussie is catching a bid off record-ish metals (Saxo, Aug 21); and copper, the cleanest read on the industrial cycle Australia rides, is near an all-time high (In it to Win it, Aug 23). When the world's reserve currency is the thing that's weak, the high-beta exporter currencies tend to float up with it.

The bear case (the ground under the loonie just gave way, and China isn't helping). The trade war didn't de-escalate, it re-escalated, and it now carries a nasty asymmetry: the very act of retaliating hands Washington the power to embargo Canadian goods (Cost of Living, Aug 21), with up to roughly 90,000 jobs on the line (Hub, Aug 21). And the ultimate buyer for everything this bloc digs up and pumps out, China, is showing a balance-sheet recession, not a recovery (Loonie Hour, Aug 21; Let's Chat Dairy, Aug 21). A weak dollar can lift the whole group; a fractured trade relationship and a stalling China can split it, punishing the tariff-exposed loonie while leaving the metals plays alone.

Where it nets out: the bull case is a dollar story, and it's real. But the one currency in this letter that got the most airtime, the loonie, is the one where the dollar tailwind is now fighting a very specific, very local headwind.

Trades in play

Only one currency generated something concrete enough to act on this week, and it's a reversal, not a fresh idea. The tariff risk premium is back on the Canadian dollar. Last week the podcasts were describing a deal that let you fade the loonie's discount; this week that deal is gone, the 50% tariffs are live, retaliation lands September 8, and, crucially, no talks are scheduled (Reuters, Aug 23). Anyone who leaned less-bearish on CAD on the strength of "a deal is coming" has lost the reason. The date to watch is September 8: if Canada actually follows through, the fine-print embargo risk Appleton described becomes live, not theoretical.

The broader, softer expression is directional rather than a packaged trade: a sliding dollar remains a tailwind for the exporter-FX bloc as a group (MUFG, Aug 21).

Read-throughs

  • WTI and Brent plus Canadian energy (CNQ, SU, ENB): no fresh price forecast this week, but a live geopolitical wildcard. New US sanctions on Iran were teased for Monday, "the toughest in history," aimed at Tehran's trading partners including China (Reuters, Aug 23). Notably, Canadian energy has stayed carved out of the tariff fight, and the Churchill Falls clean-power deal is a longer-term positive for Canada's terms of trade.
  • Copper: the standout positive, near an all-time high (about $6.87 a pound), with the miners' ETF up 10.4% on the week and the multi-decade shortage thesis reaffirmed. Constructive for the industrial cycle Australia rides.
  • The yuan and the China cue: clearly soft. Bleak hard data (investment down 6.7%, retail up 0.6%, property down 19% year over year) and falling Chinese yields point to a balance-sheet recession, and Chinese import demand is retreating even in dairy. Layered on top: a Deutsche Bank note, relayed on The Jay Martin Show (Aug 21), argues the Iran conflict could midwife a "petro-yuan," since Iran is already collecting Strait-of-Hormuz passage fees in yuan and crypto, and if the US disengages, some energy trade shifts to yuan settlement. A slow-burn, dollar-negative, yuan-positive tail.
  • New Zealand dollar and dairy: the one real NZD input. New Zealand skim milk powder firmed to $3,465 a tonne at the global auction, competitive at $1.57 a pound versus Europe's $1.54, but a strengthening El Niño threatens drier, hotter weather that could crimp milk output, even with July collections up 7.9% year over year.
  • Norway, NOK and Equinor: the only Norway note was color rather than a currency call. The country's $2.3 trillion sovereign wealth fund warned it could lose a large share of its value in an AI-driven market shock, framed as a "mental preparedness exercise" and not a market forecast (ImpactAlpha, Aug 21).

What changed

The single biggest thing: the story flipped 180 degrees. A week ago the news was Canada signing a deal and the loonie's tariff cloud lifting. This week the deal is dead, the 50% tariffs are live, Canada is retaliating from September 8, and there are no talks scheduled. Every reason to be less bearish on the Canadian dollar that we cited last week has been overtaken by events, and we now know retaliation carries a hidden embargo risk we didn't have last weekend.

The dollar story got a firmer bearish tilt. Last week the read was thoughtfully neutral after the Treasury stepped into the bond market. This week the voices leaned harder toward dollar-down, with MUFG's biggest four-week drop since early 2025, four-year lows on the index, and strategists openly not bullish.

China moved from soft to arguably worse. Last week's China worry was inferred from missing oil demand. This week it's hard macro: investment, retail and property numbers that add up to a balance-sheet recession, plus a retreat in Chinese import buying.

What didn't change: copper is still the bloc's brightest read, and the US dollar still sets the tempo for everything here.