**USD/CAD Weekly Forecast: Rising Trade Barriers Weigh on Canadian Dollar**
*Original Article Credit: Yohay Elam, Forex Crunch*
The USD/CAD currency pair ended the previous week on a rising note as widening trade restrictions and economic concerns in Canada undermined the Canadian dollar (CAD). The pair climbed despite rising crude oil prices, usually a strong supportive element for the CAD. Global risk aversion and heightened trade friction between Canada and key trading partners overshadowed gains from the commodities sector, pushing the USD to outperform the loonie.
As we move into a new trading week, investors are looking for clarity in both US and Canadian economic trajectories to determine the pair’s direction. Here’s a comprehensive breakdown of the key drivers, recent economic reports, and what traders should watch in the coming days.
## Weekly Performance Review: USD/CAD Trends Higher
The USD/CAD closed last week above the 1.34 level, marking a solid jump as demand for the greenback increased. Despite a modest rebound in oil prices—often positively correlated with CAD strength—the loonie failed to capitalize. This divergence suggests that other fundamental factors have taken precedence, especially related to trade policy and global economic sentiment.
### Key Drivers Behind USD/CAD Movement:
– **Rising Trade Barriers**: References to new or expanding trade tariffs by the US against Canada and Mexico have cast a shadow over North American trade relations. While not fully implemented yet, the perception of growing economic nationalism is unsettling for CAD investors.
– **Weak Canadian Economic Indicators**: A slew of lackluster data out of Canada raised concerns over the health of the broader economy. Markets are questioning whether the Bank of Canada will need to maintain or even increase its dovish stance.
– **US Economic Outperformance**: The US economy continues to show surprising resilience. Payrolls, consumer spending, and inflation data support the idea that the Federal Reserve will remain restrictive for longer than its Canadian counterpart, thus maintaining upward pressure on the USD.
– **Crude Oil Volatility**: Though WTI crude oil saw gains, the Canadian dollar failed to follow this trend. Some of this disconnect may come from investors growing tired of relying on commodity prices as a proxy for CAD strength in the face of broader macroeconomic concerns.
## Canadian Economic Outlook: Challenges Persist
Canada’s economic performance has come under scrutiny. The country’s GDP growth remains tepid while inflation slows, possibly giving the Bank of Canada (BoC) room to loosen monetary policy if needed.
### Important Canadian Economic Developments:
– **GDP Growth Slows**: Canada’s GDP data for the second quarter showed a cooling economy. The Bank of Canada’s 2025 projection had growth around 1 percent annually, lower than previous expectations and well below potential.
– **Trade Deficit Widens**: Canada’s international trade balance turned negative again as imports surged and exports fell, mainly due to reduced shipments of energy products.
– **Housing Market Pressure**: Mortgage rates continue to dampen housing activity. Real estate, a major sector of the Canadian economy, is seeing declining sales and rising inventory levels, especially in Toronto and Vancouver.
– **Labor Market Losing Momentum**: After months of robust job creation, the July employment report showed mild job losses and a higher unemployment rate, now at 6.1 percent. The participation rate remains unchanged, suggesting that weakness may persist.
– **BoC Forward Guidance**: The central bank recently kept rates unchanged at 4.75 percent, while maintaining that further hikes are a possibility if inflation fails to moderate. Still, markets are increasingly pricing in rate cuts by mid-2026.
### Bank of Canada in Focus
The Bank of Canada is now facing a complex balancing act:
– **Tame Inflation vs. Weakening Growth**: While headline inflation eased to 2.6 percent, core inflation components remain sticky, making aggressive rate cuts less likely in the short term.
– **Policy Divergence With the Fed
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