Title: USD/CAD Forecast: Canadian Dollar Weakens Further Amid Prolonged Selloff
Original Author: Kenny Fisher, ForexCrunch
Date: July 31, 2025
Adapted and Expanded by: [Your Name]
The Canadian dollar (CAD), popularly known as the loonie, has fallen sharply in recent trading sessions, marking a significant leg down in an extended decline against the US dollar (USD). As of the end of July 2025, the USD/CAD currency pair has surged higher, highlighting increased investor demand for the greenback while the loonie lags behind due to a mix of domestic and global economic pressures.
The current trajectory of the USD/CAD pair is the result of several key factors, including diverging monetary policies between the Bank of Canada (BoC) and the Federal Reserve (Fed), slowing economic data in Canada, declining oil prices, and broader global market volatility. This article provides a comprehensive outlook on the USD/CAD pair by analyzing recent developments, economic data releases, and potential future movements.
Recent USD/CAD Performance
As of July 31, 2025, the USD/CAD pair has climbed to 1.3790, representing a 1.6% increase for the week and a 4.2% gain year-to-date. The Canadian dollar suffered one of its most significant weekly declines in 2025, prompting renewed concerns that the currency may continue to depreciate in the near-term.
Relevant Technical and Market Observations:
– The loonie has softened for six straight sessions.
– Year-to-date, the USD/CAD has broken past several key resistance levels, suggesting potential for further bullish momentum.
Canadian Economic Indicators Turning Weaker
The Canadian economy is showing signs of strain due to weakening domestic demand and faltering consumer confidence. This deterioration can be seen in recent economic indicators:
– May GDP rose just 0.1% on a monthly basis, below expectations, with April having recorded a flat reading (0.0%).
– Year-over-year GDP growth slowed to 1.1%, compared with 1.3% a month earlier.
– Canadian inflation has also cooled significantly, with the Consumer Price Index (CPI) climbing only 2.5% year-over-year in June, down from 2.9% in May.
– Core inflation (BoC’s preferred metrics) fell to 2.2%, suggesting further disinflationary momentum.
– Retail sales in May unexpectedly fell 0.8%, signaling weaker consumer spending.
– Manufacturing sales declined for three straight months through June.
The mixed growth outlook, combined with waning inflationary pressures, allows the Bank of Canada space to cut interest rates further, which would put additional pressure on the loonie.
Bank of Canada Policy Outlook
The BoC has been among the first major central banks to begin easing its monetary policy cycle. In June, the central bank delivered a 25 basis point rate cut—the first in four years.
Key BoC policy rate developments:
– Overnight rate was lowered to 4.50% in June.
– Market pricing suggests two more cuts of 25 basis points each could be delivered by December 2025.
– Governor Tiff Macklem noted that “more easing could be warranted if inflation continues to moderate.”
The BoC’s dovish approach stands in contrast to the Federal Reserve’s more hawkish stance, widening the interest rate differential between CAD and USD—a dynamic that often weakens the loonie.
Federal Reserve Remains Vigilant
The Federal Reserve, in contrast to the BoC, has maintained a more cautious tone. In its July policy meeting, the Fed left interest rates unchanged at 5.50% but signaled a slower path to rate cuts.
Fed highlights:
– Chair Jerome Powell acknowledged some cooling in the U.S. economy but maintained that it is “premature to declare victory on inflation.”
– The Fed has emphasized data dependency, noting that any future
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