The Canadian Dollar (CAD) slipped further against the US Dollar (USD) on Tuesday, marking its third consecutive day of losses, as a rising tide of trade tensions and weakening risk sentiment lifted demand for the safe-haven Greenback.
Despite a surprise improvement in Canadian business activity, the Loonie remained under pressure, unable to withstand the broader macroeconomic narrative dominated by protectionist rhetoric from Washington. Gradiopexo brokers unpack the key points of this topic in their in-depth write-up.
USD/CAD Climbs Amid Trade Tension Headlines
The USD/CAD currency pair edged higher during North American trading hours, last seen hovering around 1.3685, near Monday’s high, after bouncing off an intraday low of 1.3638. The upward momentum in the pair was largely driven by renewed tariff concerns, with traders gravitating toward the USD amid growing geopolitical and economic uncertainty.
Market sentiment soured after the US President unexpectedly extended the reciprocal tariff deadline from July 9 to August 1, while simultaneously warning of new sweeping duties of up to 40% on imports from 14 countries, including major trade partners like Japan, South Korea, and South Africa.
The hawkish tone surrounding these potential tariff escalations sharply boosted the US Dollar Index (DXY), which tracks the performance of the Greenback against a basket of major currencies. The DXY traded near 97.70, staging a modest recovery from recent multi-year lows.
Trade War Rhetoric Lifts the Greenback
The US’s renewed tariff threats, published via his social media platform Truth, reignited fears of a protectionist trade war, driving investors out of riskier assets and into traditional safe-haven currencies such as the US Dollar. The announcement underscored the uncertain global trade environment, which continues to cloud the outlook for export-oriented economies like Canada.
While Canada was not listed among the 14 targeted countries, its trade relationship with the US remains fragile. Ottawa is racing to finalize a new bilateral security and economic agreement with Washington by July 21, amid ongoing US tariffs on critical Canadian exports like steel, aluminum, automobiles, and fentanyl-related products.
Although not directly hit by the latest round of proposed duties, the broader environment of trade friction continues to weigh on the Loonie.
Canadian Economic Data Surprises to the Upside
On the data front, the Ivey Purchasing Managers Index (PMI) surprised markets with a robust print of 53.3 for June, sharply higher than the 48.9 reading in May. This marks the highest level in four months and signals a renewed expansion in Canadian business activity. The improvement was attributed to stronger supplier deliveries and a modest uptick in employment and inventories.
Despite the upbeat economic signal, the Canadian Dollar failed to rally, with investors largely ignoring domestic fundamentals in favor of external drivers. This illustrates how global risk sentiment and US-centric developments currently dominate currency market flows, especially in the context of an economy heavily reliant on commodity exports and cross-border trade.
Eyes on FOMC Minutes and Canadian Jobs Data
Looking ahead, the next major catalyst for currency markets will be the release of the Federal Open Market Committee (FOMC) meeting minutes on Wednesday. Investors will closely scrutinize the tone for clues on the Federal Reserve’s monetary policy path, especially in light of elevated trade tensions. Any sign of a more hawkish stance or reluctance to cut rates amid persistent inflation could further reinforce US Dollar strength.
Meanwhile, Canadian traders will shift their attention to the monthly employment report, scheduled for release on Friday. The data will offer a critical update on the Canadian labor market, with analysts watching for signs of wage growth, unemployment rate changes, and shifts in full-time vs part-time employment.
A strong print could provide some near-term support for the Loonie, although it may be overshadowed by broader geopolitical developments.
Technical Outlook: USD/CAD Remains Supported
From a technical perspective, USD/CAD appears well-supported above the 1.3600 level, with upside potential toward 1.3720, especially if global risk sentiment continues to deteriorate. Key support lies near 1.3600, followed by a stronger floor at 1.3550.
On the upside, resistance can be seen around 1.3735, with a breakout potentially targeting 1.3800 in the near term.
Conclusion: Trade and Risk Sentiment Fundamentals
In summary, the Canadian Dollar’s weakening trend reflects a combination of external macroeconomic headwinds, including escalating trade tensions, a firmer US Dollar, and a general pullback in investor risk appetite. While domestic data such as the Ivey PMI shows promising signs of economic resilience, the overriding influence of US policy signals and global risk-off sentiment continues to dictate the direction of the CAD.
With critical data and policy releases on deck, including the FOMC minutes and Canadian employment figures, volatility in the USD/CAD pair is likely to remain elevated. Traders and investors should brace for further swings as headlines from Washington and Ottawa evolve in the coming weeks.
