Speculators amassed the largest bearish bets on the Canadian dollar, making it the most heavily shorted currency ahead of new U.S. tariffs. Net short positions reached US$12.5 billion in the latest CFTC data, the highest in weeks.

This heightened bearish sentiment, fueled by expectations of U.S. President Donald Trump's trade brinksmanship, pushed the loonie to a 14-month low against the U.S. dollar. Analysts like Adam Button noted Trump's tendency to use such tactics in negotiations.

Despite a recent rebound attributed to higher oil prices, the loonie faces headwinds from weak productivity growth and an uncertain trade future. The Bank of Canada has already lowered its growth forecast due to U.S. trade policy.

Meanwhile, the Bank of Canada is expected to hold its benchmark interest rate, while the U.S. Federal Reserve is anticipated to tighten. This widening yield gap favors the U.S. dollar, further contributing to the bearish outlook on the Canadian dollar.