**Canadian Dollar Struggles Amid Weak GDP, Trump Tariff Threats, and Robust U.S. Data**
*Original reporting by Yohay Elam, FXStreet. Expanded analysis and content provided through supplemental research.*
The Canadian Dollar (CAD) has come under intense pressure due to a confluence of negative factors impacting market sentiment. A string of disappointing domestic economic data, rising geopolitical tensions, and strong economic indicators out of the United States have all compounded to weaken the loonie. Investor confidence in the Canadian economy has slipped, pushing the USD/CAD currency pair higher as traders flock to the relative safety and strength of the U.S. dollar.
Here’s an in-depth look at the key drivers behind the recent decline in the CAD:
## 1. Weak Canadian Economic Data
One of the primary reasons behind the Canadian dollar’s recent decline is the release of surprisingly soft Gross Domestic Product (GDP) figures. July’s monthly GDP report showed a contraction of 0.2%, missing expectations for flat growth. This decline marks a worrying retracement for an economy already struggling amid global uncertainty and trade disruptions.
### Key findings from the GDP data:
– The Canadian economy shrank by 0.2% in the previous month, according to Statistics Canada.
– Output declined in several major sectors, including manufacturing, mining, and construction.
– Wholesale trade and transportation services also recorded reduced activity.
– Temporary factory shutdowns contributed to the overall weakness in manufacturing.
– Year-over-year GDP dropped to 1.4%, its slowest gain since late 2016.
This GDP release follows other recent data pointing to a sluggish Canadian economy. Consumer spending has been tepid, inflation remains close to the Bank of Canada’s (BoC) target but not inspiring, and exports have been hurt by lower global demand and trade uncertainty.
## 2. U.S. Tariff Threats from Trump Administration
Another significant driver of CAD weakness has been geopolitical and trade-related uncertainty, particularly comments from then-President Donald Trump regarding potential tariffs on additional Chinese imports. At that time, Trump announced a plan to impose a 10% tariff on $300 billion worth of Chinese goods starting from September 1.
Though aimed at China, these threats created indirect consequences for economies heavily reliant on international trade, such as Canada.
### Potential implications for Canada:
– Canada is deeply integrated into global supply chains, particularly with the United States and China, so ripple effects from any trade conflict tend to affect Canadian exports.
– Disruption in global manufacturing and demand could further slow Canadian factory output.
– Investor sentiment turned risk-averse, driving capital towards safer assets like the U.S. dollar and away from commodity-linked currencies like the loonie.
Investor aversion to global risk tends to hurt the Canadian dollar, which is often traded as a “risk-on” currency. Escalating trade tensions typically lead to volatility, and in this case, directly enhanced USD strength at the expense of the CAD.
## 3. Strong U.S. Economic Data
The outperformance of the U.S. economy has also contributed to the CAD’s recent weakening. Recent U.S. reports, including jobs, manufacturing, and GDP data, have signaled a strong and resilient American economy. The U.S. is showing better-than-expected results in a number of key areas.
### Notable U.S. economic indicators:
– Non-farm payrolls increased by 164,000, in line with forecasts, showing continued job growth.
– The U.S. economy expanded at an annual rate of 2.1% in the second quarter of 2019.
– Consumer spending rose sharply, a key pillar of U.S. GDP growth.
– The ISM Manufacturing Index held up better than many global peers, underscoring strength in American industrial activity.
This data has reinforced expectations that the Federal Reserve would tread cautiously with rate cuts, even amid global uncertainty. That contrasts sharply with the situation in Canada, where softer data have pushed expectations
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