The Canadian dollar weakened to 1.39 per USD from a three-month high of 1.376 reached on August 21st, as a more restrictive policy signal from Fed Chair Warsh supported the US dollar. Warsh said the Fed is tracking the PCE index as an inflation gauge, using firmer rhetoric than earlier suggestions that a newly created task force could shift the central bank’s preferred measure. Rate futures shifted toward pricing a potential Fed rate hike next month. Meanwhile, the BoC is widely expected to keep rates unchanged at its September 2nd meeting. A Fed hike alongside a BoC hold would widen the US-Canada rate differential, making US assets more attractive and putting further pressure on the Canadian dollar. Canada’s GDP expanded at its strongest pace in nearly two years, amid a rebound in auto production, providing a buffer against trade risks. However, President Trump’s threat to raise tariffs on Canadian cars, trucks and auto parts to 50% from January 1st, 2027, remained a headwind.