U.S. Rate Cut Speculation Boosts the Greenback

Recent employment data from the U.S. has heightened market expectations for a possible interest rate cut by the Federal Reserve as soon as September. Ironically, this has bolstered the U.S. dollar, as investors seek safer assets, applying more pressure on the Canadian dollar.

Weak Canadian Economic Signals

Canada’s economy shrank by 0.1%, with major sectors such as retail and energy showing a slowdown. The Bank of Canada has maintained rates at 2.75%, but indications of potential easing have lowered investor confidence in CAD's near-term prospects.

Trade Tensions Rise

New U.S. tariffs on Canadian exports, which have risen from 25% to 35%, have further weakened sentiment toward the loonie. These trade tensions might negatively impact Canadian companies and hinder economic recovery

Oil Prices No Longer a Lifeline

Traditionally supported by oil exports, the Canadian dollar is not seeing much help from global crude prices, which remain subdued amid oversupply and weakening demand.

Outlook

Unless trade disputes ease or the Fed signals a clearer path to rate cuts, analysts expect the Canadian dollar to stay under pressure, possibly testing USD/CAD 1.40 in the coming weeks.