Title: USD/CAD Weekly Forecast: Trump’s Tariffs Stoke Trade Tensions, Weigh on Canadian Dollar
Source: Adapted and expanded from the original article by Kenny Fisher on Forex Crunch (2025/07/12)
As markets digest a new wave of economic and geopolitical developments, the USD/CAD currency pair finds itself at the center of renewed volatility. The Canadian dollar has come under pressure against the US dollar in recent sessions, largely due to rising trade tensions revived by former U.S. President Donald Trump’s latest policy proposals. These developments raise critical concerns about trade relations between the United States and Canada, particularly regarding tariffs on Canadian exports. Over the past week, USD/CAD has shown bullish momentum, and this trend may persist depending on macroeconomic indicators and global risk sentiment.
This forecast provides a detailed breakdown of developments affecting the USD/CAD trajectory, with attention to monetary policy, geopolitical triggers, and economic data points from both the U.S. and Canada.
Highlights From the Previous Week (July 8–12, 2025)
The week saw renewed market volatility as fears over trade and tariffs returned to the forefront:
– Former U.S. President Donald Trump, a major contender in the 2024 elections, reignited trade fears by suggesting re-imposition of tariffs on Canadian industrial goods.
– U.S. trade policy resurfaced as a market mover, as Trump’s comments pointed toward possible 10% across-the-board tariffs on imports, including aluminum, steel, and automotive components.
– Oil prices, which significantly influence the Canadian economy and the loonie (CAD), faced headwinds amid weaker-than-expected global demand projections by the International Energy Agency (IEA).
– Canadian economic data came in mixed, with lower-than-expected building permits and softer employment numbers.
– In contrast, the U.S. delivered stronger-than-anticipated inflation data, increasing bets of sustained higher interest rates, prompting a stronger dollar.
Trade Tensions Back in Focus
The trade relationship between the U.S. and Canada, deeply integrated through the United States–Mexico–Canada Agreement (USMCA), has faced its share of friction, particularly under previous Trump administration policies. Trump’s suggestion to reintroduce blanket tariffs could severely impact Canadian exports, especially in the auto and energy industries. Key considerations include:
– Canada is the U.S.’s largest trading partner, with bilateral trade valued at over $800 billion annually.
– The imposition of tariffs may weaken investor confidence and trigger retaliatory measures from Canada.
– Export-reliant Canadian sectors, including lumber, auto parts, and energy, could suffer demand decreases.
Impacts on USD/CAD Market Behavior
Traders responded to the renewed trade rhetoric by rotating capital into the U.S. dollar, viewed as a safe haven amid potential market disruptions. The Canadian dollar, by contrast, weakened due to its vulnerability to tariff-related headwinds, particularly given Canada’s dependence on its trade surplus with the U.S.
– USD/CAD rose to a 10-week high, closing the week above the 1.38 level.
– The pair approached critical resistance at 1.3850, coinciding with technical trends favoring upside continuation.
– Currency markets priced in elevated risk premiums for CAD-denominated assets, as investors feared further policy friction.
Oil Prices and CAD Correlation
The Canadian dollar is closely tied to crude oil prices given that oil is the country’s largest export. However, oil’s performance has been lackluster in recent weeks:
– The International Energy Agency (IEA) revised global crude oil demand downward, citing weakened industrial output in China and Europe.
– WTI crude dropped below $75 per barrel midweek, before recovering modestly.
– The correlation between oil and CAD remained in place, with each dip in crude weighing on the Canadian dollar.
As long as oil markets face demand uncertainty, Canada’s resource-heavy economy and currency are unlikely to gain significant momentum against the USD.
U.S. Inflation Data Upsets
Read more on USD/CAD trading.