The Canadian dollar weakened about 0.3% to around C$1.3900 per U.S. dollar on Friday, putting it on course for its steepest weekly decline in more than two months. It earlier fell to C$1.3908, its weakest level in nine days, as markets raised the probability of a 25-basis-point Federal Reserve rate increase in September to about 57.5% from 35% previously after Federal Reserve Chair Kevin Warsh’s remarks. The dollar index rose about 0.6% to 99.69, its highest level since Aug. 17. Canada’s economy grew at a 3.3% annualized pace in the second quarter, the strongest quarterly expansion since 2023 and above the Bank of Canada’s previous 2.5% forecast, but the data offered little support because it largely predated the latest escalation in Canada-U.S. trade tensions. Investors are focusing on how new U.S. tariffs and Canada’s retaliatory measures could affect growth in the second half of the year, particularly after trade talks broke down last week. Warsh said the Federal Reserve would have more work to do if inflation does not make convincing progress toward its 2% target, keeping a U.S. rate increase in play as markets assessed his speech at the Jackson Hole economic symposium. The loonie has held relatively steady against the U.S. dollar compared with its performance against the Australian dollar, which recently climbed to a more than five-year high of C$0.9979. A Reuters poll of 35 economists found the Bank of Canada is expected to keep its overnight rate at 2.25% at its Sept. 2 meeting and through at least the third quarter of 2027. The expected gap between U.S. and Canadian interest-rate policies limits the scope for Canadian yields to rise alongside U.S. rates, leaving the loonie more exposed to dollar strength.