**USD/CAD Weekly Forecast: Trade Barriers Weigh on the Canadian Dollar**
*By Yohay Elam, with additional analysis and expansion for clarity and depth.*
The USD/CAD pair ended its latest trading week on a bullish note as persistent trade uncertainties between the United States and Canada continue to exert downward pressure on the Canadian dollar. A combination of geopolitical tensions, weakening economic data from Canada, and hawkish sentiment from the Federal Reserve have pushed the pair closer to key technical resistance zones. In this expanded forecast, we’ll explore the underlying factors influencing this move, indicators to watch, and how future policy decisions may shape the outlook for USD/CAD through the second half of 2025.
## Overview of the Past Week’s Price Action
The USD/CAD pair traded in a higher range throughout the week, consolidating recent gains before making a strong move toward 1.3650. Market sentiment leaned in favor of the US dollar, bolstered by robust economic indicators and the growing appeal of US assets as a safe haven amid trade uncertainty.
Key developments from the week:
– USD/CAD opened the week near 1.3520 and gained steadily before closing just shy of 1.3650
– Canadian economic data disappointed across the board, particularly in retail and energy sectors
– Hawkish rhetoric from the US Federal Reserve helped fuel demand for the greenback
– Investors grew increasingly concerned about new trade barriers impacting Canada’s exports
## Canadian Dollar Pressured by Heightened Trade Uncertainty
Canada’s close economic relationship with the United States has long made its currency sensitive to shifts in trade policy. Over the past few months, new frictions in US-Canada trade relations, especially regarding agricultural imports and energy regulation, have created headwinds for the CAD.
Trade developments this week:
– Reports emerged that the US may introduce new tariffs on Canadian dairy and aluminum exports, citing vague “national security” concerns under Section 232 of US trade law
– Canadian officials warned that retaliatory measures were being considered, further raising fears over a tit-for-tat tariff war between the two nations
– Energy exports, long a cornerstone of Canada’s current account, continue to face logistical barriers due to delays in pipeline infrastructure and shifting US energy strategies post-Inflation Reduction Act
These factors have led investors to reevaluate growth prospects in Canada, driving CAD-longs to exit their positions in favor of USD or safer commodity-linked currencies like the AUD.
## Canadian Economic Data Weakens
While global factors have played a role in weakening the Canadian dollar, soft domestic economic data has exacerbated the downward pressure on CAD. Several key indicators released in the past week suggest that Canada’s economic momentum is slowing more quickly than anticipated.
Highlights from recent Canadian data:
– Core Retail Sales (MoM) fell by 0.5%, well below expectations of a +0.2% gain
– CPI inflation showed a modest decline, inching closer to the Bank of Canada’s (BoC) 2% target, reducing the urgency for tightening
– GDP growth projections for Q3 have been revised down to 0.4% from the previous estimate of 0.7%
– Housing starts dropped for the third consecutive month, signaling fragility in Canada’s residential construction sector
Bank of Canada Governor Tiff Macklem acknowledged “emerging signs of slack” in the economy during his recent parliamentary testimony. However, he also reiterated the bank’s commitment to maintaining a data-dependent approach, leaving room for potential rate cuts later this year if economic deterioration continues.
## Divergence in Central Bank Policy Outlooks: Fed vs. BoC
Divergence in monetary policy expectations between the US Federal Reserve and the Bank of Canada continues to be a dominant driver of USD/CAD price action.
US Federal Reserve:
– US non-farm payrolls increased by 240,000 in the previous reading, surpassing expectations and indicating continued labor market resilience
– Fed Chair Jerome Powell reiterated the need to keep interest
Read more on USD/CAD trading.