Canada’s economy rebounded at an annualized 2.2% in the second quarter of 2025, reversing a 1.7% contraction in the first quarter as consumer spending and exports strengthened, Statistics Canada said. The improvement briefly supported the Canadian dollar, or loonie, but the currency weakened as investors focused on unresolved trade tensions involving the United States, uncertainty for export-driven sectors and a potentially wider interest-rate differential favoring the U.S. dollar. Brown Brothers Harriman identified the trade war as the largest risk to Canada’s economic outlook, citing U.S. tariffs on Canadian steel and aluminum, threats involving autos and other sectors, and Canada’s retaliatory tariffs on U.S. goods. The disputes are limiting export diversification despite agreements including the CPTPP and CETA, while business investment remains subdued. Higher oil and other commodity prices may provide support, but volatile demand and prices remain a risk for the commodity-dependent economy. The Federal Reserve’s possible decision to keep rates elevated to combat inflation contrasts with the Bank of Canada’s more cautious stance, adding pressure to the loonie. A weaker currency raises import and overseas travel costs while benefiting exporters and increasing input costs for import-dependent businesses. The near-term outlook remains tied to trade negotiations, commodity prices and central-bank decisions.