The Canadian Dollar (CAD) slipped further on Wednesday, marking fresh two-week lows against the US Dollar (USD) as investors scrambled for safety amid intensifying risk aversion. The USD/CAD pair surged above the 1.3700 handle, a clear indication that the Greenback continues to attract buyers in a risk-off environment.
Market sentiment remains fragile, battered by the resurfacing of tariff threats from the US Administration, a move that has once again reignited uncertainty in global trade dynamics. Fimatron’s article delivers expert insights and a full breakdown of the subject at hand.
US Tariff Bluster Rekindles Market Tension
The sudden jolt to investor confidence came after the US President reiterated his stance on punitive tariffs, targeting nations he claims have imposed unfair trade practices on the US. The administration is reportedly preparing double-digit import tariffs, set to take effect on August 1, unless favorable trade terms are reached beforehand.
This development follows earlier delays to the tariff implementation timeline, and it once again injects volatility into markets trying to navigate a confusing and inconsistent policy outlook.
However, seasoned investors are approaching this renewed tariff rhetoric with skepticism. The US President’s previous tactics often involved exaggerated threats, followed by a subsequent walkback once market pressure mounted. This precedent has left a portion of the market still pricing in the possibility of reduced tariff severity or further negotiation-based delays.
Canadian Data Mixed, But Loonie Struggles
Despite the renewed downward pressure on the CAD, domestic economic data provided a small glimmer of relief. The Canadian Ivey Purchasing Managers Index (PMI) for June bounced back above the crucial 50.0 contraction threshold, indicating a modest improvement in business sentiment after two months of pessimism.
However, the uptick in PMI was not enough to reverse the broader bearish momentum surrounding the CAD.
The Canadian economy remains on uneven footing, with wage growth, business investment, and trade flows all exhibiting signs of instability. Focus now shifts to the upcoming Canadian employment data, where markets anticipate flat job growth for June and a potential increase in the Unemployment Rate to 7.1%.
These numbers will be closely watched as an indicator of whether the economy is heading toward a soft landing or slipping into stagflationary territory.
Light Risk Aversion Weighs on Commodity Currencies
The CAD, often considered a commodity-linked currency due to Canada’s heavy reliance on energy exports, tends to perform poorly in risk-off environments. As tariff tensions escalate, global growth prospects dim, weakening demand for raw materials like crude oil, which in turn applies downward pressure on the Loonie.
Additionally, the resurgence of trade protectionism tends to strengthen the US Dollar, which benefits from its safe-haven status during global uncertainty. The divergence in monetary policy expectations between the Bank of Canada (BoC) and the Federal Reserve (Fed) is also widening.
While the BoC remains cautious amid weakening domestic indicators, the Fed appears more confident, albeit conditional on continued disinflation and tariff moderation.
Technical Outlook for USD/CAD
From a technical standpoint, the USD/CAD pair is testing critical levels. The exchange rate has broken above the 1.3700 resistance, hovering near the upper band of a descending channel that has dominated price action since the multi-decade highs seen earlier in 2025.
A sustained move above the 1.3750-1.3800 zone could invalidate the broader downtrend and pave the way for a bullish reversal, especially if the CAD continues to falter on weak domestic data or if USD strength gains further traction on heightened risk aversion. On the downside, immediate support lies near 1.3620, and a break below this region could reopen the path toward 1.3500.
What Comes Next?
For the Canadian Dollar, short-term pressures appear tilted to the downside. Tariff-induced uncertainty, weak labor market expectations, and a rising Greenback all converge to form a bearish narrative for the CAD. Traders will also be on the lookout for any unscheduled commentary from the US President or his trade advisors, which could either exacerbate or relieve tensions with just a few remarks.
Meanwhile, for the US Dollar, any continued bid in safe-haven flows, combined with a potentially more hawkish Fed, provides ample ammunition to sustain its upward trajectory.
In the absence of a clear risk-on catalyst, the USD looks poised to maintain its dominance, leaving commodity currencies, especially the Canadian Dollar, at risk of further depreciation in the days ahead.
Conclusion
The CAD remains highly sensitive to shifts in global trade sentiment, especially when amplified by US-centric policy moves. Until greater clarity emerges on both tariff implementation and Canadian labor market strength, the path of least resistance for USD/CAD remains to the upside. Markets may need to brace for more choppy price action as geopolitical narratives continue to dictate the pace of FX flows.
