Canadian Dollar Update, August 21, 2026 – Canadian Dollar rally may be running out of steam

Canadian Dollar rally may be running out of steam

• Canada and US close to trade deal
• US Treasury intervention in long bond market weighing on greenback
• US opens with losses across the board and is down on the week.

USDCAD open: 1.3749, overnight range 1.3744-1.3791, close 1.3789, WTI 86.62, Gold 4,582.84

The Canadian dollar is firm and poised to end the week with a gain of around 1.32% this week. The prospect of a Canada-US trade agreement has nothing to do with the selling pressure.

That is coming from elsewhere, and the US Treasury deserves the credit. The US Treasury doubled the size of its 10-to-30-year bond buybacks, insisting the move was intended to improve liquidity in the less actively traded long-dated sectors.

Investors were not buying that explanation, particularly with US government debt now above $40.0 trillion and concerns about the country’s fiscal position growing. The move was also interpreted as Treasury attempting to exert greater influence over US interest rates. Bessent then poured more fuel on the fire by suggesting the buyback program could be expanded again.

Treasury yields initially dropped following the announcement, although much of that decline has since been unwound. The episode nevertheless made alternatives to US investments considerably more appealing, with gold and cryptocurrency prices surging.

Canada Retail Sales are expected to increase 0.4% m/m on both the headline and ex-auto measures. The numbers are unlikely to attract much attention, however, with the market firmly focused on the trade negotiations.

Asian equity markets finished on a mixed note. Hong Kong’s Hang Seng climbed 1.21% and Japan’s Topix added 0.19%, but Australia’s ASX 200 slipped 0.27%.

As of 7:30 am the German DAX is up 0.27% while the French CAC-40 and the UK FTSE 100 have gained 0.14%. S&P 500 futures are up 0.37%,and  the US 10-year Treasury yield is 4.69%

EURUSD traded in a 1.1676-1.1712 range. The single currency held on to Thursday’s advance and picked up a modest bid on evidence of improving factory activity. The Eurozone August PMI printed at 52.8, up from 51.9 in July.

GBPUSD bounced in a 1.3626-1.3676 band. Sterling extended its recent climb as Treasury Secretary Bessent’s attempt to lean on interest rates has weighed on the greenback. Better consumer confidence figures and a firm PMI release added underpinned the currency.

USDJPY traded defensively in a 158.36-159.14 band. The currency pair is pressured by the soft tone in the greenback and firm Japanese inflation data. National CPI excluding food and energy accelerated to 1.8% y/y from 1.7% the month before.

AUDUSD was steady in a 0.7108-0.7166 band supported by bearish US dollar sentiment and less urgency for a RBA rate hike due to the latest jobs data.