By Fergal Smith
TORONTO, May 27 (Reuters) – The Canadian dollar weakened to a six-week low against its U.S. counterpart on Wednesday, as oil prices dropped and investors focused on the review of a continental free trade pact that has shielded much of Canada’s goods from U.S. tariffs.
The loonie was trading 0.2% lower at 1.3830 per U.S. dollar, or 72.31 U.S. cents, after touching its weakest intraday level since April 13 at 1.3851.
The Trump administration’s trade agency said it will kick off the first of three negotiating rounds with Mexico this week to revamp the United States-Mexico-Canada Agreement, but made no mention of any talks with Canada.
“There is this headline risk for the Canadian dollar around USMCA,” said Adam Button, chief currency analyst at investingLive.
“It’s back in the headlines now and U.S. representatives seem to be taking a harder line on Canada than Mexico despite differences in the trade deficit.”
The U.S. deficit on goods and services with Canada was $24.4 billion in 2025, much less than the $194.6 billion deficit with Mexico, data from the U.S. Bureau of Economic Analysis showed.
The price of oil, one of Canada’s major exports, was trading 4.5% lower at $89.63 a barrel after Iranian state TV said it had seen a draft of an initial, unofficial framework for an agreement between Iran and the United States on ending their conflict and reopening the Strait of Hormuz.
“CAD is particularly sensitive to the outcomes in Iran and the Bank of Canada has explicitly said that,” Button said.
If oil prices were to stay high and begin pushing up inflation the BoC has said it might have to respond with consecutive interest rate hikes.
Investors are pricing in 34 basis points of tightening this year from the central bank, down from 54 basis points before the release of cooler-than-expected domestic inflation data last week.
Canadian bond yields were mixed across the curve, with the 10-year barely changed at 3.460%.
(Reporting by Fergal Smith, Editing by Nick Zieminski)