**USD/CAD Weekly Forecast: Trade Barriers Pressuring the Canadian Dollar**
*Original article credited to Yohay Elam, Forex Crunch*
The USD/CAD currency pair continues to reflect the broader economic and geopolitical uncertainty affecting North America. Recently, the Canadian dollar has been under pressure due to growing trade tensions and emerging non-tariff barriers that hinder Canadian exports. Given these headwinds and differing economic trajectories, the USD/CAD pair could experience increased volatility in the coming weeks. This article offers an in-depth analysis of the USD/CAD pair for the week ahead, with a focus on trade policy developments, central bank decisions, economic indicators, and projections for both currencies.
## Key Drivers Behind USD/CAD Movement
Several intertwined factors influence the USD/CAD exchange rate. Among them, trade policy between the U.S. and Canada, oil prices, interest rate differentials, and broader market sentiment carry the most weight. Below are the driving forces behind the recent trend.
### 1. Rising Trade Barriers and Policy Uncertainty
– Canada and the U.S., despite a longstanding trade partnership, are currently at odds over various trade issues.
– Canadian exporters are reporting increasing difficulties due to what they term “non-tariff barriers” imposed by the United States. These include additional inspections, bureaucratic delays, and tighter enforcement of product standards.
– The Canadian government has signaled concern and is assessing policy responses. These trade frictions decrease foreign investors’ confidence and place downside pressure on the Canadian dollar.
– The United States remains Canada’s largest trading partner, with nearly 75 percent of Canadian exports headed south of the border. Any disruption or added friction in this relationship can materially affect the loonie.
According to a report from Reuters (August 2025), the Canadian Chamber of Commerce raised red flags about unequal U.S. enforcement of the USMCA (United States-Mexico-Canada Agreement), resulting in mounting tension during bilateral trade progress meetings.
### 2. Monetary Policy Divergence: Fed vs. BoC
– The Federal Reserve and the Bank of Canada (BoC) are now on different paths in their fight against inflation.
– The Fed has maintained its hawkish tone, indicating that interest rates may remain elevated well into 2026 if inflation persists above the 2 percent target. Recent U.S. CPI and PCE data support staying the course with tight monetary policy.
– In contrast, the BoC recently paused rate hikes, citing signs of slowing domestic demand and a fragile job market.
– This divergence in rate policies has created yield differentials that make the U.S. dollar more attractive to investors, pushing USD/CAD higher.
According to Bloomberg data, the 10-year U.S. Treasury yield rose to 4.35 percent last week, compared to Canada’s government bond yield at 3.58 percent. The favorable yield spread supports USD inflows.
### 3. Weakening Oil Prices
– As a key exporter of crude oil, Canada’s currency is heavily influenced by fluctuations in oil prices.
– WTI (West Texas Intermediate) crude dipped below $79 per barrel last week, driven by concerns over global demand and unexpected inventory builds in the U.S.
– China’s sluggish recovery and rising output from non-OPEC countries have also capped oil prices, hurting the Canadian dollar as foreign exchange markets price in weaker trade revenues.
Oil prices tend to have a direct correlation with the CAD, and any prolonged slump could reinforce the current bearish trend in the currency.
### 4. Economic Data Trends
– Recent Canadian data show stagnation in wage growth and a softening housing market. Retail sales fell for a second consecutive month and consumer confidence dipped to a two-year low.
– U.S. economic data, on the other hand, remain mostly upbeat. The latest NFP (non-farm payrolls) report showed job gains exceeded estimates, while personal income and consumption continue to support economic activity.
– Stronger U.S. economic resilience
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