**USD/CAD Weekly Forecast: Trade Tensions Weigh on the Canadian Dollar**
*Original article credit: Yohay Elam, Forex Crunch (August 16, 2025)*
The USD/CAD currency pair experienced notable fluctuations over the past week, reflecting market sentiment shifts due to renewed trade concerns between the United States and Canada. As investors continue to digest macroeconomic data and evolving policy outlooks, the Canadian dollar found itself under pressure, largely undermined by the reintroduction of trade barriers and uncertain investor sentiment.
This week’s developments in both Canadian and American economic indicators, combined with comments from central bank officials, helped shape the pair’s trajectory. Let’s delve into the key factors that influenced the USD/CAD exchange rate and assess what to expect in the upcoming week.
## Overview of Last Week’s USD/CAD Performance
The Canadian dollar depreciated against its U.S. counterpart during the week ending August 16, 2025. The loonie was hit from multiple sides, including:
– Mounting trade barriers between the U.S. and Canada.
– Weak Canadian economic data showing slower-than-expected growth.
– Hawkish signals from the Federal Reserve suggesting a longer runway for interest rates to remain elevated.
– Declining crude oil prices, another headwind for the Canadian economy due to its dependence on commodity exports.
USD/CAD climbed from around 1.3370 to above the 1.3500 handle by the end of the week, driven largely by U.S. dollar strength and loonie weakness.
## Trade Barriers Return, Threatening North American Trade
One of the standout themes for the week was the return of trade friction in North America. The Biden administration reimposed tariffs on select Canadian aluminum and lumber products, citing national security concerns linked to supply chain imbalances. Canada quickly responded with its own retaliatory duties on U.S. agricultural exports and machinery.
The escalation renewed fears from the earlier days of U.S.-Canada trade tensions—previously calmed by the implementation of the USMCA (United States-Mexico-Canada Agreement). However, these measures hint at cracks emerging under the surface of the trade deal.
Market reaction was quick:
– Canadian equities sank modestly as exporting sectors such as timber and energy underperformed.
– The loonie lost ground as traders priced in the economic downside of reduced exports and potential inflation caused by retaliatory tariffs.
– Risk aversion returned to the North American economy, boosting demand for the U.S. dollar as a safe-haven.
## Canadian Economic Indicators: Mixed Signals
Canada’s macroeconomic data this week did little to support the loonie. Key releases included weak manufacturing figures and lackluster consumer confidence readings.
1. **Manufacturing Sales (June Data)**
– Posted a 1.8 percent decline, worse than the 0.9 percent drop expected.
– Indicated slowing industrial demand and bottlenecks in supply chains, partially linked to worsening trade conditions.
2. **Consumer Confidence Index**
– Ticked down slightly to its lowest level since February 2025, reflecting growing household pessimism.
– Higher interest rates and sticky core inflation are putting pressure on disposable income.
3. **Housing Starts and Building Permits**
– While housing starts remained relatively strong, building permits dropped by 5.2 percent month-on-month.
– The data suggests consumer hesitation about future growth and credit expansion.
Overall, the domestic macro picture painted a sluggish economic outlook for the Canadian economy, pushing investors to favor safer assets—primarily U.S. dollar-denominated ones.
## Bank of Canada Stays Dovish Amidst Economic Uncertainty
The Bank of Canada (BoC) held its key lending rate unchanged at 5 percent, stating it would continue to “… assess the impact of prior rate hikes” before deciding on further rate moves. The BoC’s Monetary Policy Report highlighted softer growth prospects in Q3 and Q4 2025,
Read more on USD/CAD trading.