1 September 2025,03:22
Daily Market Analysis
1 September 2025, 03:22
Key Takeaways:
*Canada’s Q2 GDP contracted 1.6% annualized, its worst since the pandemic, driven by a 7.5% export collapse under U.S. tariffs.
*Domestic demand rose 3.5%, showing internal resilience even as trade shocks dismantled external growth.
*Markets boosted bets on a September BoC cut, with recovery prospects hinging on Washington’s tariff path and NAFTA talks.
Market Summary:
The Canadian dollar remained under heavy selling pressure after data confirmed the economy slipped into contraction, becoming one of the first major economies to be hit directly by U.S. trade tariffs. GDP shrank at a 1.6% annualized pace in Q2, Canada’s worst performance since the pandemic, driven almost entirely by a 7.5% collapse in exports.
The breakdown showed a striking divergence: final domestic demand expanded 3.5%, underpinned by resilient consumer spending and housing investment, while the export sector was effectively dismantled by U.S. tariff measures. Markets quickly repriced the Bank of Canada outlook, with expectations for a September rate cut climbing as policymakers face pressure to cushion an externally driven slowdown.
Legal developments in the U.S. offered little immediate relief. While a federal appeals court declared Trump’s “reciprocal tariffs” illegal, the ruling is stayed until October, leaving levies in place and extending uncertainty. With NAFTA renegotiations unresolved, the loonie’s recovery prospects remain tethered to Washington’s policy path and the BoC’s response in the coming weeks.
Unless tariffs are lifted swiftly, the loonie will likely remain under downward pressure, with near-term moves dictated more by external trade policy than by Canada’s relatively strong domestic economy. BoC policy easing and global risk sentiment will be critical drivers heading into Q4.
USD/CAD is trading near 1.3735 after extending its decline from the 1.3870 zone, with price holding just above support at 1.3700. The pair is trading below both the 20- and 50-period moving averages, reinforcing the near-term bearish bias.
Momentum indicators lean negative. The Relative Strength Index (RSI) is at 34, reflecting bearish momentum though nearing oversold territory. The MACD remains below the zero line with widening downside pressure, signaling sellers still hold control.
On the upside, a rebound above 1.3750 would ease downside pressure and shift focus toward 1.3870. On the downside, a breakdown below 1.3700 could extend losses toward 1.3650, with a deeper move exposing the 1.3575 level.
Resistance Levels: 1.3750, 1.3870
Support Levels: 1.3700, 1.3650
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