Saudi Arabia said it will continue to ratchet up pressure on Canada for criticizing the recent arrests of women activists, as Prime Minister Justin Trudeau upheld his stance on human rights.

The kingdom’s foreign minister, Adel Al-Jubeir, said Wednesday the next wave of retaliatory steps could affect investment flows between the countries. Saudi Arabia’s central bank and pension funds have already begun selling Canadian assets, according to people familiar with the matter. A report on the asset sales in the Financial Times earlier Wednesday triggered a brief sell-off in the loonie. Canadian stocks and bonds were little changed.

“Canada knows what it needs to do," Al-Jubeir told a news conference in Riyadh, saying there was no need for mediation in the dispute. “We don’t accept interference in our affairs."

Canada will “remain firm” on human rights, Trudeau told reporters in Montreal, adding Foreign Minister Chrystia Freeland had a “good, long” conversation with her Saudi counterpart on Tuesday and that Canada doesn’t want poor relations with the kingdom. He declined to say whether he would apologize to the Saudi government.

The Saudi’s unusually severe response is the latest evidence that while touting himself as a champion for economic and social progress -- including by letting women drive for the first time -- Crown Prince Mohammed bin Salman won’t accept any outside criticism or perceived challenges to his authority.

Under his watch, Saudi Arabia has implemented an increasingly aggressive foreign policy. In November, the kingdom recalled its ambassador to Germany and cut back commercial ties with some German companies after the then-foreign minister suggested the kingdom had orchestrated the surprise resignation of Lebanese Prime Minister Saad al-Hariri, a charge it denies.

“The fact that the Saudis have made similar noises about Germany is further evidence that they are just more willing to escalate with important trade and political partners than in the past,” said Gregory Gause, a professor of international affairs and Saudi specialist at Texas A&M University.

Fast Escalation

Since Freeland called on Saudi Arabia to release rights activist Samar Badawi from prison on Aug. 2, Saudi Arabia has expelled the Canadian ambassador, frozen new business deals, suspended flights to Toronto and ordered the return of thousands of students who are studying at Canadian schools. The Saudi Grains Organization, a state-run grains buyer, told traders it will no longer accept milling wheat or feed barley from Canada, according to people familiar with the matter.

Badawi’s brother Raif Badawi, a writer, was arrested in Saudi Arabia in 2012 and later sentenced to 1,000 lashes and 10 years in prison for insulting Islam while blogging. Raif Badawi’s wife is a Canadian citizen living in Quebec.

Loonie Falls

On Wednesday, the Canadian currency dropped as much as 0.5 per cent to $1.3120 per U.S. dollar after the Financial Times reported that the Saudi Arabia central bank and state pension funds have instructed their overseas asset managers to dispose of Canadian assets “no matter the cost” starting Tuesday. The loonie rebounded shortly afterward and traded 0.2 per cent stronger at 3:18 p.m. in Toronto.

Saudi’s asset sales may not have a big impact on the Canadian currency, although seasonally thin trading in August could exacerbate that effect. Saudi holdings of Canadian dollar reserves are between $10 billion and $25 billion, with the upper end of that estimate representing 10 per cent of daily Canadian dollar volumes, according to estimates from the Canadian Imperial Bank of Commerce.

“That’s enough to leave a mark on the loonie in August when volumes are typically lighter,” said Bipan Rai, North American head of foreign exchange strategy at CIBC. Still, Rai said the impact on the currency should be “ephemeral” as bilateral trade between Saudi Arabia and Canada is small.

So far this year, Canada has exported $1.4 billion in merchandise goods to Saudi Arabia and imported $2 billion, according to Statistics Canada data. Canada’s main imports from Saudi Arabia are oil, while its exports include armored vehicles as part of a $15 billion arms contract signed in 2014 with a unit of General Dynamics Corp.

Grain Impact

Saudi investments in Canada include Winnipeg, Manitoba-based grain trader G3, which was formed in 2015 after Saudi Agricultural & Livestock Investment Co., or Salic, and Bunge Ltd. acquired a 50.1 per cent stake in the former Canadian Wheat Board for $250 million. Salic increased its share to 75 per cent a year later.

On Tuesday, G3 officials said the company continues to buy and sell grain as usual amid the diplomatic clash. Officials didn’t immediately return requests for comment from Bloomberg News on Wednesday.

With files from BNN Bloomberg