Title: USD/CAD Forecast: US Dollar Attempts Recovery After Initial Decline
Original article by Kenny Fisher, Forex Crunch
The USD/CAD currency pair demonstrated a key shift after a turbulent start to the week, with the US dollar regaining some strength following losses seen on Monday. The recovery comes amid fluctuating economic indicators in both the United States and Canada, as well as shifting investor sentiment influenced by central bank policy expectations. This article provides a comprehensive overview of recent USD/CAD movements, contributing macroeconomic factors, and the near-term outlook for the pair heading into the latter half of 2025.
Market Recap: USD/CAD Retraces Early Losses
After a notable drop on Monday that saw the US dollar fall in response to weaker-than-expected US data, it managed to find its footing on Tuesday. While the Canadian dollar initially benefitted from rising crude oil prices and strong domestic retail sales figures, these gains were offset as risk-off sentiment swept the markets.
Key drivers of this shift included concerns over global growth, rising geopolitical tensions, and a recalibration of expectations regarding the Federal Reserve and Bank of Canada interest rate policies.
Tuesday’s forex session saw USD/CAD climb 0.3 percent, settling near 1.3240 in North American trade. This rebound was partially driven by:
– A stronger-than-expected US PMI report from S&P Global
– Renewed demand for the US dollar as a relative safe haven
– A pullback in oil prices after a climb over $85 per barrel
– A mild correction in Canadian retail optimism following an initial surge
US PMI Report Surprises to the Upside
The key piece of macroeconomic data that helped boost the dollar on Tuesday was the better-than-expected US Purchasing Managers’ Index (PMI) for July, published by S&P Global:
– Manufacturing PMI: Rose to 50.7, up from 49.8 (forecast: 50.2)
– Services PMI: Increased to 52.5, above the forecast of 52.0
– Composite PMI: Climbed to 52.1 from 51.2 in the previous month
These figures suggest moderate expansion in both the US manufacturing and services sectors. The improvement underscores economic resilience despite persistent inflation and uncertainty around monetary policy.
While the PMI readings weren’t spectacular, breaking above the 50 threshold in both gauges suggested the US economy remains in expansion, countering fears of a sharp slowdown. This helped bolster investor confidence in the dollar, pushing USD/CAD higher.
Canadian Data Supports the Loonie, But Oil Retracement Limits Gains
Canada released mixed economic data on Monday, with June’s retail sales outperforming expectations:
– Headline retail sales: +0.7% m/m (forecast: +0.3%)
– Core retail sales (excluding autos): +0.8% m/m (forecast: +0.4%)
While these numbers reflect consumer strength and provide positive signals for GDP growth in Q2, the Canadian dollar failed to capitalize fully on the data as global risk sentiment deteriorated.
Another important factor for the loonie, crude oil prices, which had supported strength in the CAD in recent weeks, experienced a temporary pullback:
– Brent crude dropped just below $85 per barrel after hitting $86.50
– WTI crude declined near $81.50 from a weekly high
This minor retracement in oil prices put a cap on gains for the commodity-linked Canadian dollar. Analysts at TD Securities pointed out that “oil remains a near-term driver of USD/CAD, but global macro forces are taking increasing precedence.”
Rate Expectations and Central Bank Divergence
At the center of USD/CAD fluctuations lies diverging monetary policy paths between the Federal Reserve and the Bank of Canada.
Federal Reserve:
– Markets remain split on whether the Fed will begin cutting rates in Q4 2025
– Inflation remains above the Fed’s 2 percent target, with June’s core P
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