Date: 2nd July 2025.


Canadian Dollar Wobbles as US Tariffs, Weak Economy Hit Loonie.



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The threat of US tariffs and Trump’s halt to trade talks weighed on the CAD, with the Canadian economy projected to contract. Steady oil prices did little to help, and the Bank of Canada’s hawkish stance was not enough to stem the decline.


On Monday, White House Economic Adviser Kevin Hassett announced that the United States would soon resume trade talks with Canada. The move followed Canada’s decision to suspend a digital services tax targeting US technology companies. The suspension came just hours before the tax was due to take effect, indicating Canada’s efforts to resume stalled trade talks.


The Canadian Ministry of Finance confirmed that Prime Minister Mark Carney and US President Donald Trump would resume trade talks, with a target of reaching a deal by July 21. The positive developments provided a slight boost to the Canadian dollar (CAD).


Oil Price Pressure, US Debt Outlook


On the other hand, crude oil prices are facing pressure. Investors are weighing easing risks in the Middle East versus the prospect of a possible output increase by OPEC+ in August. This could potentially weigh on the Loonie, the commodity-linked Canadian dollar, and could limit further downside for the USDCAD pair.


Meanwhile, if Trump’s ‘One Big Beautiful Bill’ is passed, it is expected to add about $3.8 trillion to the US federal deficit. This widening fiscal imbalance could further weigh on the US dollar (USD) and potentially boost demand for gold as a safe-haven asset.


US Economic Data to Watch


On the economic front, the ISM Manufacturing PMI for June is expected to edge up from 48.5 to 48.8, indicating a slight increase in factory activity. The ADP employment report is also projected to show an increase in private sector job creation, with 85,000 jobs added compared to 37,000 in the previous month.


However, the main focus will shift to Friday’s Non-Farm Payrolls (NFP) report. Expectations point to a slowdown in hiring, with 110,000 jobs added in June, down from 139,000 in May. The unemployment rate is expected to edge up from 4.2% to 4.3%, reinforcing the narrative of a cooling labour market. What do you think, will the NFP report be the main determinant of the US Dollar’s ​​movement this week?


Canadian Dollar Under Pressure: US Tariff Threats, Weak Economy Hit Loonie


The Canadian Dollar (CAD) recently weakened above $1.37 per USD, pressured by a combination of new US tariff threats and trade policy uncertainty. The CAD had previously strengthened, but market sentiment has now turned around. The weakness was triggered by President Trump's announcement that he was ending all trade discussions with Canada over Canada's new digital services tax. Trump also warned of retaliatory tariffs, which immediately rattled exporters and dented confidence in near-term economic growth.





Domestically, the Canadian economy is expected to contract by a 0.1% monthly rate in April and May, highlighting Canada's vulnerability to potential US levies and dampening the outlook for trade-sensitive sectors. Although the Bank of Canada (BoC) kept its policy interest rate at 2.75%, citing strong core inflation and signalling that no further rate cuts are imminent, this hawkish stance has not been enough to counter the pressure from resurgent tariff fears.


From a technical perspective, the intraday bias in USDCAD is neutral after a temporary rebound from 1.3590. Broadly speaking, the pair is still likely to move to the bearish side below 200 bar EMA. On the downside, with a break of the 1.3590 temporary low a retest of the 1.3538 low should be done first. A strong break there would resume a larger decline. For now, the risk remains on the downside as long as the 1.3797 resistance holds, in case of a recovery.


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Please note that times displayed based on local time zone and are from time of writing this report.


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Ady Phangestu
HFMarkets


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