**USD/CAD Weekly Forecast: Rising Trade Barriers Weaken the Canadian Dollar**
*Original source: Forex Crunch – August 16, 2025, by Yohay Elam*
The Canadian dollar (CAD) faced considerable pressure over the past week, with the USD/CAD currency pair climbing steadily due to increasing trade uncertainties, particularly between Canada and its major global partners. While Canada’s economy continues to show resilience in some areas, rising protectionist policies and global economic tensions are contributing to investor unease. As a result, the Canadian dollar has weakened, providing upward momentum for the USD/CAD pair. This article offers a deeper dive into the fundamental and technical drivers shaping this currency pair, with insight into what traders might expect in the upcoming week.
## Overview of the Past Week
Over the past several trading sessions, the USD/CAD pair gained ground, moving above key resistance levels. Several factors contributed to this movement:
– **Trade Tensions Increase**: The reimposition of tariffs on key Canadian exports has rattled market confidence. Ongoing trade disputes, particularly with the United States, are raising concerns about Canada’s future export prospects and undermining CAD strength.
– **Oil Prices Volatility**: As a commodity-linked currency, the Canadian dollar often correlates with oil prices. Despite relatively stable crude inventories, oil markets showed high volatility, with prices swinging due to changes in OPEC+ policies and weak global demand. This dampened sentiment around the CAD.
– **Strong U.S. Economic Indicators**: On the opposing side, the U.S. economy released better-than-expected retail data and job market figures, bolstering the U.S. dollar. The Federal Reserve’s upbeat tone in recent policy meetings also refreshed the dollar’s appeal.
## Canadian Economic Data Review
Canada’s data last week was a mixed bag, strengthening the argument for dovish sentiment from the Bank of Canada (BoC).
### Employment and Inflation
– **Employment**: Statistics Canada reported a lower-than-expected job growth for July, with only 7,000 positions added, missing forecasts of 20,000.
– **Unemployment Rate**: The unemployment rate ticked up to 6.0%, suggesting the labor market is weakening slightly.
– **Inflation**: Core Consumer Price Index (CPI) slowed to an annual rate of 2.3%—below the BoC’s target midpoint, and showing signs of moderating inflation.
These indicators may reduce pressure on the BoC to hike interest rates further in 2025. If inflation continues to remain tame and the labor market weakens, policymakers may pivot toward a neutral or even dovish tone in upcoming meetings.
## Central Bank Divergence
A growing policy divergence between the U.S. Federal Reserve and the Bank of Canada is another driving force behind the weakening CAD.
### Bank of Canada
– The BoC held interest rates steady at 5.00% during its last policy meeting.
– The tone of the statement leaned cautious, acknowledging fragile consumer spending and external risks related to global trade.
– Their forward guidance stressed a data-driven approach, but markets interpret their position as more dovish, especially compared to the Fed.
### Federal Reserve
– The U.S. Federal Reserve kept its benchmark rate at 5.50% but struck a hawkish note, emphasizing that elevated inflation could warrant future hikes or a longer period of high rates.
– Fed Chair Powell noted resilience in consumption and job creation, reinforcing investor confidence in the U.S. economy.
As interest rate differentials widen or remain in favor of the USD, capital flows are likely to prefer U.S. assets, which exerts additional downward pressure on the CAD.
## Trade Barriers and Tariff Risks
A central theme in weakening sentiment toward the Canadian dollar is the resurgence of trade barriers. After several rounds of diplomatic negotiations between Canadian trade officials and U.S. counterparts, no significant breakthroughs have occurred. Tensions have escalated around
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