Canadian dollar falls ahead of US deadline for new tariffs

The Canadian dollar gave back some of its recent gains against its US counterpart on Tuesday, while bond yields eased slightly from multi-year highs as investors assessed the prospects of Canada reaching a deal with Washington to avoid new tariffs on its exports.

The Canadian dollar weakened 0.2% to C$1.39 per US dollar, or 71.94 US cents, after reaching its strongest level in more than two months on Monday at C$1.3842 per US dollar.

Canadian Prime Minister Mark Carney's office said Carney spoke with US President Donald Trump on Monday as Canada seeks a last-minute agreement to prevent new 50% US tariffs from taking effect at midnight on Wednesday. The new tariffs would cover around $20 billion worth of imports from Canada.

Analysts said: "A durable agreement could push USD/CAD toward 1.37," adding that "an escalation in tensions could send the pair back above 1.40 in the coming days."

Higher oil supports Canadian dollar despite tariff pressure

US West Texas Intermediate crude futures rose 0.6% to $85.03 a barrel as fading prospects for an agreement to end the war in the Middle East fueled concerns that disruptions to energy supplies could persist for longer. Oil is one of Canada's major exports.

Canadian home sales increased for a fourth consecutive month in July, rising 0.5% from June, while prices edged higher.

"The Canadian housing market is stabilizing, and we may have reached the bottom of this long cycle," BMO Capital Markets chief economist Robert Kavcic said in a note.

Separate data for July showed that Canadian housing starts unexpectedly declined, falling 5% from the previous month.

Canadian government bond yields fell by 2 to 3 basis points across the yield curve, although the decline came after the 30-year yield reached 4.173%, its highest level since January 2010.

Long-term borrowing costs in the United States, Japan and Germany climbed to their highest levels in decades as inflation concerns resurfaced, while persistent worries about fiscal pressures across major economies dealt another blow to global bond markets.