**USD/CAD Weekly Forecast: Rising Trade Barriers and Weak Economic Indicators Shake Confidence in the Canadian Dollar**
Original Reporting by Yohay Elam, Forex Crunch
The USD/CAD pair saw continued upward pressure this past week, driven largely by escalating trade tensions and underwhelming Canadian economic data. As concerns around the global economy grow, the protective stance of the U.S. economy and ongoing American economic resilience have boosted the greenback. Meanwhile, Canada’s reliance on exports and vulnerability to trade restrictions have placed a burden on the loonie.
This week’s performance illustrates a pivotal shift in sentiment: while the U.S. dollar has benefited from risk-off sentiment and domestic outperformance, the Canadian dollar has reacted negatively to economic softness and shrinking trade flows.
## Key Developments Impacting USD/CAD This Week:
### 1. US Economic Strength Supports the Dollar
The U.S. economy continues to demonstrate resilience, showing solid GDP growth and labor market robustness. Contrary to early-year recession projections, recent data continues to highlight economic expansion:
– July’s Non-Farm Payrolls (NFP) report surpassed expectations with +245,000 jobs added.
– U.S. inflation, while decelerating slightly, remains above the Federal Reserve’s 2 percent target, fueling hawkish expectations.
– Consumer sentiment remains stable, underpinned by steady job creation and real wage gains.
The robust economic trajectory in the U.S. has triggered a repricing of interest rate expectations. Investors are betting that rates could remain higher for longer, drawing capital inflows and benefiting the greenback. Hawkish commentary from several members of the Federal Reserve’s Federal Open Market Committee (FOMC) has reinforced this view.
### 2. Trade Tensions and Barriers Undermine Canadian Outlook
Canada’s economic structure is highly sensitive to international trade, particularly with the United States, which accounts for nearly 75 percent of Canada’s exports. New and emerging trade disputes are threatening this relationship.
– The United States recently imposed stricter import controls on Canadian aluminum and softwood lumber, citing national interest.
– Canada responded with retaliatory measures, but economists note that Canada has less leverage in a trade conflict with its larger southern neighbor.
– Ongoing disputes related to carbon pricing and digital services taxes have further strained bilateral ties.
These developments have dampened business investment and shaken investor confidence in the loonie. Fears that an extended trade standoff could constrain Canadian exports have helped push the USD/CAD pair higher.
### 3. Canadian Economic Data Disappoints
Recent macroeconomic indicators released by Statistics Canada point to stagnating domestic growth and deteriorating consumer sentiment:
– Canada’s Q2 GDP grew at a slower-than-expected annual rate of 0.6 percent, compared to consensus estimates of 1.2 percent.
– Retail sales declined 0.3 percent in June, the second consecutive monthly contraction, reflecting weakened consumer spending.
– Inflation came in at 2.7 percent year-on-year in July, down from the prior month and beneath Bank of Canada forecasts.
Further compounding matters, the unemployment rate in Canada rose to 6.2 percent, its highest level in over a year. The uptick suggests a possible easing of inflationary pressures, which could limit the Bank of Canada’s willingness to raise interest rates further.
### 4. Divergence in Central Bank Policies
Market participants are closely tracking the divergent paths of the Bank of Canada (BoC) and the U.S. Federal Reserve.
– The BoC recently opted to hold the overnight rate at 5.0 percent but struck a more cautious tone given domestic economic slack.
– The Federal Reserve, on the other hand, has signaled a willingness to hike once more in 2025 if inflation does not show meaningful decline.
This asymmetry has pressured the CAD, especially as Canadian yields become less attractive relative to their U.S. counterparts.
## Chart Technicals: USD/CAD Builds Bullish Momentum
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