The Canadian dollar climbed to fresh highs against the US dollar after President Donald Trump paused the threatened 50% tariffs on Canadian goods for three days and the US Treasury moved to expand its liquidity-support operations in the government bond market.

The currency had endured a rough session the previous day. With the tariff deadline approaching and no breakthrough in US–Canada negotiations, markets had grown increasingly concerned that the threatened 50% tariffs would go ahead. The stakes are particularly high for Canada: roughly three-quarters of Canadian exports go to the US market, led by categories such as energy and autos, so tariff threats on that scale bear directly on the growth expectations that shape the currency.

The picture changed completely when Trump delivered another classic “TACO” moment — the widely used market shorthand for “Trump Always Chickens Out,” describing the president’s pattern of threatening tariffs before delaying them — by pausing the tariffs for three days. Trump added that the United States and Canada have a deal, subject to the finalisation of the relevant documents. The news provided significant relief for the Canadian dollar, which erased all of its losses heading into the tariff deadline. The three-day window now keeps the focus on whether those final documents are completed before the pause expires, leaving the tariff threat technically in place in the meantime.

The loonie — the Canadian dollar’s nickname, taken from the loon that appears on the country’s one-dollar coin — then extended its gains against the greenback after the US Treasury announced it would increase the size of its liquidity-support buyback operations for longer-dated securities. Such buybacks involve the Treasury repurchasing older, off-the-run securities in order to support trading liquidity in the Treasury market. The Treasury launched regular buybacks in 2024 with exactly that aim, targeting older issues that trade less freely than newly auctioned debt, and the market it supports is the world’s largest government bond market and a key benchmark for global borrowing costs.

On the daily USD/CAD chart — the pair that shows how many US dollars one Canadian dollar buys, meaning a falling rate reflects a stronger loonie — the exchange rate recently broke through a major support zone around the 1.3920 level. That break, all else being equal, opened the door to a move toward the next support zone around the 1.3750 level.

The US–Iran war remains the main risk ahead. A prolonged stalemate, accompanied by passive easing in financial conditions, should be negative for the US dollar and continue to support the CAD into new highs. A major escalation, on the other hand, could give the greenback a boost on risk-off flows and renewed inflation and Fed rate hike concerns.