1 August 2025,05:58
Daily Market Analysis
1 August 2025, 05:58
Key Takeaways:
*BoC’s dovish tone and weak growth outlook widen Fed divergence.
*Tariff risk looms large with trade deadlines and no U.S. deal in sight.
*Policy uncertainty and slowing economy keep pressure on CAD ahead of September.
Market Summary:
The Canadian dollar remains under pressure following the latest escalation in U.S.-Canada trade tensions. President Trump’s announcement of a 35% tariff on selected Canadian imports—up from the previous 25%—has triggered renewed volatility in the loonie and clouded the country’s near-term growth prospects. The White House cited insufficient cooperation on controlling fentanyl flows as justification, though many analysts view the move as politically motivated.
Domestically, the Canadian economy is showing signs of fatigue. May GDP contracted -0.1% month-on-month, marking the second consecutive monthly decline. Retail sales fell -1.2%, led by a steep -4.8% drop in auto sales, reflecting the early impact of tariff threats. The Bank of Canada has maintained its policy rate at 2.75%, but dovish undertones have emerged, with policymakers indicating a willingness to ease further if trade frictions deepen the slowdown. Swap markets currently price in a 62% chance of a rate cut by year-end.
While energy prices remain a critical factor for the loonie, they offer limited support in the current environment. West Texas Intermediate (WTI) crude continues to hover near $69.40/barrel, but wildfires and maintenance outages have curbed Alberta oil sands output, compounding economic headwinds.
With the U.S. labor market showing resilience and the Federal Reserve signaling a “higher-for-longer” policy stance, the Canadian dollar is at risk of further depreciation. A break above 1.3900 could open the door to a test of the 1.4000 level, particularly if geopolitical tensions persist and domestic growth fails to rebound.
Technical Analysis
The USD/CAD chart shows a strong bullish momentum as the pair continues its upward trajectory, recently breaking above the key resistance zone of 1.3800 and approaching the next major resistance at 1.3885. The move has been supported by a clean breakout from a rising wedge pattern, followed by three clear bullish reversal signals marked by higher lows, which collectively formed a strong ascending structure. Price action remains well above all major moving averages, with the 20 SMA serving as immediate dynamic support.
On the momentum front, the RSI stands at 73, indicating overbought conditions, suggesting the potential for a short-term pullback or consolidation phase. However, the MACD remains bullish with its histogram still in positive territory, and the signal line continuing to trend upward, further confirming buying pressure. If the pair fail to break above 1.3885 decisively, a retest of the 1.3800–1.3780 support zone cannot be ruled out. On the downside, key levels to watch include 1.3668. Overall, the trend bias remains bullish in the short term, but the overbought technicals call for cautious positioning.
Resistance Levels: 1.3885, 1.3970
Support Levels: 1.3780, 1.3668
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