**USD/CAD Weekly Outlook: August 16, 2025 – Trade Barriers Apply Downward Pressure on Canadian Dollar**
*Original article by Yohay Elam, Forex Crunch*
The USD/CAD currency pair saw significant movement during the week ending August 16, 2025, driven largely by growing concerns over trade policies and protectionism, ongoing fluctuations in the oil market, and diverging economic indicators out of the United States and Canada. Rising trade tensions, particularly between Canada and the United States, have placed notable pressure on the Canadian dollar (CAD), complicating its outlook despite solid economic fundamentals at home.
The US dollar (USD), by contrast, remained relatively steady, buoyed by mixed but steady economic data and the market’s expectation of tighter monetary policy from the Federal Reserve. The combination of mounting trade barriers and diverging economic trajectories between both countries contributed to the weakening of the loonie over the week.
This analysis delves into the primary drivers behind the USD/CAD pair’s recent volatility and offers a forecast for the week ahead based on macroeconomic events, central bank outlooks, and technical indicators.
## Key Themes Driving USD/CAD Movement
### 1. Rising Trade Barriers and Protectionist Measures
Trade relations between Canada and the United States, historically robust owing to free trade agreements such as NAFTA and later the USMCA, have recently shown signs of strain. The introduction of new tariffs and barriers from both sides threatens Canadian exports, especially in sectors like steel, aluminum, and lumber.
– The U.S. Department of Commerce recently announced a review of Canada’s softwood lumber subsidies, hinting at potential tariff hikes.
– Canada responded by imposing targeted tariffs on select U.S. goods, leading to concerns over escalating trade friction.
– These trade measures risk undermining investor confidence in the CAD due to its heavy dependence on external trade, particularly with the U.S., its largest trading partner.
### 2. Oil Prices Provide Limited Support for the Loonie
The Canadian dollar often correlates with crude oil prices, as oil is one of the country’s largest exports. However, in the current environment, oil market support was not enough to offset the economic risks stemming from trade instability.
– Brent crude traded above $83 per barrel during the past week but showed signs of stalling amid concerns of weakening global demand.
– OPEC+ production cuts continue to underpin prices, but they are having diminishing returns in strengthening oil-sensitive currencies.
– Canada’s Western Canadian Select (WCS) remains heavily discounted relative to global benchmarks, which limits the extent of the loonie’s gains from oil price rallies.
### 3. Mixed Canadian Economic Data
Canada’s recent data releases have been a mixed bag. While employment numbers showed resilience, manufacturing and trade-related metrics hinted at softness, reinforcing the vulnerability of the Canadian economy to external shocks.
Key metrics for the past week:
– The housing market showed signs of moderation, with existing home sales down 1.7 percent month-over-month in July.
– The July jobs report revealed a net gain of 21,000 positions, modestly beating analyst expectations. However, wage growth remained sluggish at 3.4 percent year-over-year.
– Trade balance figures disappointed, revealing a CAD 1.2 billion deficit for June – a consequence of falling export volumes, particularly in automotive and industrial sectors.
Such figures suggest that while Canada’s domestic economy is not in recessionary territory, its momentum remains vulnerable to external pressure points.
### 4. U.S. Resilience Fuels Dollar Strength
Across the border, recent data has reinforced the narrative of a resilient U.S. economy. Consumer spending remains robust, job creation continues at a steady pace, and inflation is showing gradual signs of moving toward the Federal Reserve’s 2 percent target.
Important takeaways:
– The Consumer Price Index (CPI) for July rose by 0.3 percent month-over-month, meeting expectations and reinforcing bets that the Fed
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