The Canadian dollar weakened on Friday, reaching a nine-day low against the U.S. dollar despite stronger-than-expected economic growth data, as investors questioned whether the GDP figures would alter the Bank of Canada’s near-term interest-rate plans.

The loonie was down about 0.3% at C$1.39 per U.S. dollar, or roughly 71.94 U.S. cents, after falling as low as C$1.3908. The currency was on track for a 1% weekly decline, ending a four-week winning streak.

The weekly drop was largely linked to new U.S. trade measures imposing 50% tariffs on about C$20 billion of Canadian imports, increasing concerns about the impact of the trade dispute on Canada’s economy.

Strong GDP Growth

Canada’s economy expanded at an annualized 3.3% pace in the second quarter, following a revised 0.3% increase in the first quarter. Growth was supported by stronger exports and continued domestic demand.

Despite the headline growth figure, economists suggested that the data may not significantly change the Bank of Canada’s policy outlook. BMO Chief Economist Douglas Porter said the results were encouraging but unlikely to materially alter the broader economic picture.

The central bank is expected to take a cautious approach while assessing how Canada’s economy responds to the latest tariff measures and how the trade dispute develops.

A Reuters survey of economists showed expectations that the Bank of Canada will maintain its benchmark rate at 2.25% at its upcoming meeting and keep it at that level for at least another year.

Fed Comments Support the U.S. Dollar

The Canadian dollar also faced pressure from a stronger U.S. dollar following comments by Federal Reserve Chair Kevin Warsh.

Speaking at the Federal Reserve’s Jackson Hole economic symposium, Warsh indicated that the U.S. central bank could need to take additional action if policymakers are not convinced that inflation is moving sustainably toward the 2% target.

The comments increased expectations for potentially tighter U.S. monetary policy and helped the U.S. dollar recover. The dollar index rose approximately 0.5% against a basket of major currencies.

Scotiabank strategists said Warsh’s comments could continue influencing foreign-exchange markets into the following week, particularly by reducing some of the recent pressure on the U.S. dollar.

Canadian Bond Yields Rise

Canadian government bond yields also moved higher, with the two-year yield rising 4.5 basis points to 3.016%.

The yield difference between Canadian and comparable U.S. two-year government bonds widened by roughly 6.4 basis points, reaching about 132 basis points in favor of the U.S. Treasury. That represented the largest spread in more than three weeks.

Bottom Line

Canada’s strong second-quarter growth provided little support for the loonie because investors remain focused on U.S. tariffs, the Bank of Canada’s cautious policy outlook, and renewed strength in the U.S. dollar. With the trade dispute still developing, markets appear more interested in how tariffs affect future Canadian growth than in the latest backward-looking GDP figures.