CAD Slips as Tariff Risk Overshadows Jobs Data

Key Takeaways:

*Tariff Threat Weighs on Loonie: CAD slumps as Trump threatens 35% blanket tariff, reigniting trade uncertainty.

*BoC Rate Cut Bets Fade: Strong jobs report tempers July rate cut odds, but CPI and trade risks may shift outlook.

*Oil and Autos Drag CAD: Weak crude and auto-sector exposure add pressure as Windsor’s jobless rate hits 11.2%.

Market Summary:

The Canadian dollar remains under pressure as renewed trade tensions with the U.S. weigh heavily on sentiment, despite a stronger-than-expected domestic labor report. President Trump’s threat to impose a sweeping 35% tariff on Canadian goods by August 1 has reintroduced significant downside risks for the loonie, particularly as Canada sends roughly 75% of its exports to the U.S. The loonie fell to a fresh monthly low as investors priced in the economic fallout should negotiations collapse.

June’s jobs report offered some temporary reprieve, showing a net gain of 83,000 positions and a dip in unemployment to 6.9%. However, the quality of hiring raised concerns, with part-time jobs leading the increase and wage growth slowing to 3.2% YoY from 3.4% previously. While the strength in employment has tempered expectations of a July 30 rate cut—now priced at just 13% probability—investors are closely watching June CPI data due July 15 for further policy signals. A modest inflation uptick to around 1.8–1.9% is expected, though trade-related price pressures could delay further easing. Economists at CIBC and TD still anticipate two rate cuts later this year, but escalating trade risks may push that timeline into Q4.

Compounding CAD’s vulnerability, oil prices have struggled to gain traction amid Saudi production increases and muted global demand, limiting support for the commodity-linked currency. From a risk perspective, a breakdown in trade talks would likely hit sectors like autos and manufacturing hardest. Windsor’s jobless rate already sits at 11.2%—the highest among Canadian metro areas—underscoring the localized economic fragility. Canada’s move to postpone retaliatory tariffs signals a diplomatic approach, but markets remain wary of last-minute shocks.

Looking ahead, the loonie is expected to remain on the defensive unless a breakthrough in trade talks materializes or oil prices rebound convincingly. With the Bank of Canada likely to remain on hold this month, the combination of inflation data on July 15 and the looming tariff deadline on August 1 will serve as key directional catalysts. The outcome of these events will likely define the CAD’s near-term trajectory, as markets attempt to balance domestic labor resilience with growing external vulnerabilities.

Technical Analysis

USDCAD, H4

USD/CAD is consolidating in a narrow band just beneath the 1.3680 resistance level after recovering from June’s downtrend. The pair has carved out a potential bottoming formation following a classic inverse head and shoulders pattern, which was confirmed with a neckline break near 1.3650. Since then, price action has shown resilience, holding above key short-term moving averages while repeatedly testing the upper boundary of the recent range.

Momentum indicators are cautiously constructive but not yet emphatic. The RSI hovers around 53—slightly above neutral territory—suggesting moderate bullish bias without being overextended. Meanwhile, the MACD is flat, with the histogram narrowly positive and the MACD and signal lines converging near the zero line, highlighting a lack of strong directional momentum at present.

For now, USD/CAD is in a technical holding zone. Bulls are in control, but the lack of follow-through raises questions about conviction. A catalyst—likely from macro events or oil market volatility—may be required to ignite the next directional move.

Resistance Levels: 1.3685, 1.3750

Support Levels: 1.3650, 1.3570