**USD/CAD Weekly Forecast: August 16, 2025 – Protectionist Measures and Economic Divergence Weigh on the Canadian Dollar**
(Adapted and expanded from an article by Yohay Elam at Forex Crunch)
The USD/CAD currency pair experienced notable volatility during the week ending August 16, 2025, spurred by increased trade tensions, diverging economic signals, and growing protectionist sentiment. These factors collectively undermined the Canadian dollar, benefiting the U.S. dollar amid ongoing global uncertainty. As economic data and political narratives continue to shape investor sentiment, this forecast explores the trends driving the pair and what traders should expect in the upcoming week.
### Summary of the Past Week: USD Strengthens While CAD Falters
The USD/CAD currency climbed significantly, reaching levels last seen in early 2024. The surge in the U.S. dollar was largely driven by increasing market risk aversion, stronger-than-expected U.S. economic data, and rising interest rate expectations from the Federal Reserve. Meanwhile, the Canadian dollar struggled, weighed down by softer domestic economic metrics and the growing impact of trade barriers.
Key developments from the week:
– **USD/CAD rose by over 1.5%** from its weekly lows, marking the largest weekly gain for the pair in nearly two months.
– **Trade-related headlines** dominated the news, including the United States considering new tariffs on Canadian agricultural and manufacturing imports under the guise of national security concerns.
– **Crude oil volatility** added further headwinds for the CAD, as energy markets faced uncertainty due to softening demand projections globally.
– **Disappointing Canadian housing data** confirmed a slowdown in real estate activity, raising concerns about consumer spending and economic growth in Canada.
### Economic Drivers Impacting USD and CAD
#### US Economic Landscape: Resilient and Growing
The U.S. economy continues to show resilience amid high interest rates, reflecting robust labor market numbers and rising consumer confidence. Several indicators signaled sustained growth:
– **July Non-Farm Payrolls** beat forecasts with 255,000 new jobs added, compared to market expectations of 210,000.
– **Core CPI inflation picked up slightly**, rising to 3.8% annualized. While not alarming, this figure pointed to persistent price pressures, prompting speculation about another Federal Reserve interest rate hike in the fourth quarter of 2025.
– **Retail sales increased by 0.7% month-on-month**, vs. a forecast of 0.4%, suggesting strong consumer demand.
– **FOMC Minutes indicated a hawkish tilt**, with members showing concern about inflation being too sticky and agreeing that another rate hike could be warranted unless inflation moves considerably lower.
Market reaction:
– **U.S. 10-year Treasury yields jumped**, reinforcing USD strength across the board.
– The **Dollar Index (DXY) surged above 105**, its highest level since March 2024.
#### Canadian Economy: Weakening Under Pressure
Canada is beginning to feel the pinch from both external and internal pressures. The trade environment is becoming more hostile, and domestic indicators point to a cooling economy.
– **July employment data showed a net loss of 18,000 jobs**, far below the estimated gain of 15,000, increasing unemployment to 5.7% from 5.5% previously.
– **Canada’s inflation figures dipped**, with core CPI falling to 2.3% year-on-year, below the Bank of Canada’s target and raising questions about future rate cuts.
– **Trade balance slumped**, with exports falling due to weakening global demand, particularly from the United States and China.
– **Real estate continued to soften**, with home sales falling 3.5% month-on-month, and prices down in major urban centers like Toronto and Vancouver.
Market implications:
– Expectations have increased for the **Bank of Canada (BoC) to begin cutting rates as early as Q1 2026
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