**USD/CAD Weekly Forecast: Trade Barriers Pressure Canadian Dollar Amid Economic Challenges**
*By Yohay Elam, originally published at Forex Crunch*
The USD/CAD currency pair saw notable movement last week, influenced by deteriorating trade dynamics and diverging monetary policy expectations between the United States and Canada. With increasing protectionist policies and fluctuating commodity prices, the Canadian dollar (CAD) continues to face headwinds. This article explores the past week’s developments, key economic indicators, and what traders might expect from USD/CAD in the near term.
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## Overview of the Past Week
The past week saw the USD/CAD climb higher, driven by a combination of stronger economic indicators from the United States and concerning trade tensions affecting Canada. These developments have intensified investor concern regarding the Canadian economy’s resilience, particularly as Canada’s reliance on international trade and exports faces mounting challenges.
Key drivers behind the pair’s upward movement included:
– **Stronger-than-expected U.S. inflation data**, fueling speculation about prolonged higher interest rates from the Federal Reserve
– **Falling crude oil prices**, which often negatively impact the Canadian economy due to its status as a major oil exporter
– **Escalating trade tensions**, particularly surrounding North American trade barriers and export tariffs
– **Soft Canadian employment data**, suggesting a potential slowdown in economic momentum
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## Economic Data Recap
Here’s a snapshot of relevant economic data released last week:
### United States
– **Consumer Price Index (CPI)**: U.S. CPI came in hotter than expected, with core CPI rising by 0.3 percent month-over-month. Annual inflation remained persistently above the 2 percent target, keeping pressure on the Federal Reserve to maintain elevated interest rates.
– **Producer Price Index (PPI)**: Also showed stronger readings, indicating that inflationary pressures remain embedded across supply chains.
– **Retail Sales**: U.S. retail sales data for July revealed continued consumer resilience, coming in above forecasts and further supporting the demand side of the economy.
– **Jobless Claims**: Weekly jobless claims remained relatively low, suggesting a robust labor market and reinforcing the case for a “higher for longer” interest rate stance.
### Canada
– **Employment Change**: Canada’s economy lost approximately 6,000 jobs in July, falling short of market expectations. Although the unemployment rate held steady at 5.5 percent, the data appears to signal underlying weakness in the labor market.
– **Trade Balance**: Canada’s trade balance turned negative, recording a CAD 3.7 billion deficit as exports declined more sharply than imports. Reduced global demand and U.S. trade policy adjustments weighed on Canadian exports.
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## Impact of Trade Barriers on the Canadian Dollar
One of the most significant themes influencing the Canadian dollar in recent weeks has been protectionist trade policies. Increasing U.S. enforcement of tariffs and trade restrictions — particularly on Canadian softwood lumber and agricultural exports — has rattled investor sentiment toward the CAD.
Some of the current developments:
– On August 14, the U.S. Department of Commerce reaffirmed duties of nearly 9 percent on softwood lumber imports from Canada, citing anti-dumping measures.
– The Canadian government has expressed dissatisfaction with these unilateral trade actions, and policymakers have launched appeals both under Canada–U.S.–Mexico Agreement (CUSMA) mechanisms and at the World Trade Organization.
– These trade disputes have reignited concerns about overall North American economic integration, a key pillar of Canada’s export-oriented economy.
Prolonged trade tensions may cause companies to rethink investment plans across the Canadian manufacturing and resource sectors, potentially weakening business sentiment and employment trends over time.
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## Oil Prices and CAD Correlation
Oil is a central component of Canada’s export economy. The Canadian dollar often moves in tandem with crude oil prices, particularly Western Canadian Select (WCS) and West Texas Intermediate (WTI).
Last week, crude oil prices experienced volatile trading sessions. Despite an earlier
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