**Canadian Dollar Faces Strong Headwinds from Weak GDP, Trump Tariff Threat, and Robust U.S. Data**
*Original reporting by FXStreet. Expanded and adapted version by AI Assistant, incorporating additional current and historical context.*
The Canadian Dollar (CAD) remains under pressure due to a confluence of negative factors impacting the broader economic outlook for Canada. A disappointing gross domestic product (GDP) reading, escalating U.S. trade rhetoric, particularly from former U.S. President Donald Trump, and robust U.S. economic data have combined to weigh heavily on the Canadian currency. As a result, USD/CAD has experienced a noticeable shift upward, reflecting a stronger U.S. Dollar and weaker sentiment toward the Canadian Dollar.
This article elaborates on the recent moves in the USD/CAD currency pair and examines the underlying factors currently placing the Canadian Dollar at risk.
## Canadian GDP Growth Slows Sharply
One of the immediate catalysts for recent Canadian Dollar weakness was a poor GDP print, which pointed to a broader economic slowdown in Canada.
– Canadian GDP for May came in flat, missing analysts’ expectations for a 0.1% gain.
– Compared with last year, GDP rose just 1.2%, significantly lower than the Bank of Canada’s forecast and far below expectations.
– Key sectors, such as manufacturing and housing, remained weak.
– Service-producing industries remained stagnant, while goods-producing industries shrank due to declines in oil and gas extraction.
Canada had previously shown resilience in the post-pandemic period, buoyed in part by strong commodity prices and housing-driven domestic demand. However, 2024 has brought forward signs that higher interest rates and global demand uncertainties are chilling economic activity. The GDP miss reflects not only cyclical softness but a potential structural slowdown affecting Canadian productivity and competitiveness.
This raises concerns for policymakers at the Bank of Canada, who may now face heightened pressure to cut interest rates earlier than projected to help stimulate economic growth. Lower interest rates typically lead to a weakening of the domestic currency, further pressuring the CAD.
## Renewed Trade Fears After Trump’s Tariff Warning
Further weighing on the Canadian Dollar are growing fears of a return to protectionist trade policies in the United States, Canada’s top trading partner. These concerns were sparked by recent comments from former President Donald Trump, the presumptive Republican nominee for the 2024 U.S. presidential election.
– Trump reiterated his support for steep tariffs on foreign imports, including a proposed 10% universal tariff.
– He also emphasized that if reelected, he would take aggressive steps to negotiate stronger trade terms with key U.S. partners — potential disruptors for U.S.-Canada trade flows.
– Trump singled out countries that he believes benefit unfairly from U.S. trade relationships, echoing sentiments from his first administration.
Trump’s previous term saw significant disruptions in North American trade, including the renegotiation of NAFTA, leading to the United States-Mexico-Canada Agreement (USMCA). During that time, Canadian exports faced uncertainty, and the imposition of steel and aluminum tariffs significantly impacted Canadian manufacturers.
Now, financial markets are concerned that another tariff regime could reemerge, hampering Canadian exports and weighing on the currency. As Canada sells over 75% of its exports to the United States, threats to this trade relationship directly impact investor sentiment toward the CAD.
## U.S. Data Strengthens the Case for a Hawkish Fed
Meanwhile, the United States has recently posted a series of strong economic indicators that support a more hawkish stance from the Federal Reserve, further fueling USD strength.
– The U.S. economy grew at a much faster pace than expected in Q2 2024, with GDP rising by 3.1% annualized, boosted by government spending, business investment, and strong consumer demand.
– Job data continues to be solid, with unemployment holding near multi-decade lows and wage growth showing persistent gains.
– Inflation has moderated but remains sticky, leading the
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