28 July 2025,04:14
Daily Market Analysis
28 July 2025, 04:14
Key Takeaways:
*Escalating trade conflict poses structural risks to CAD, with possible tariffs up to 35% hitting key sectors.
*Domestic growth is stalling, and BoC is constrained by persistent core inflation despite waning demand.
*Political uncertainty and export dependency amplify the loonie’s vulnerability; structural reforms aim to mitigate this in the long run.
Market Summary:
The Canadian dollar remains fragile as escalating trade tensions with the U.S. continue to weigh on sentiment ahead of the August 1 tariff deadline. President Trump recently reaffirmed plans for 35% tariffs on Canadian goods, particularly targeting autos and metals industries, raising the risk of a sharp contraction given Canada’s heavy reliance on U.S. trade for almost 75% of exports. A deal remains uncertain, and markets dropped the loonie by 0.5% toward C$1.3710 per U.S. dollar amid the headlines. Also, Canada has already imposed 25% retaliatory tariffs on roughly C$30 billion of U.S. imports, and further escalation could amplify cross-border economic disruptions.
Domestically, Canada’s economic outlook offers limited consolation. May’s GDP contracted by 0.1%, and Q2 is forecast to show further weakness—suggesting a potential technical recession. While June’s Ivey PMI rebounded to 53.3, indicating renewed expansion, investors remain focused on trade and inflation risks clouding the near-term picture.
The Bank of Canada (BoC) is expected to keep the overnight rate unchanged at 2.75% when it meets on July 30, marking a third consecutive pause after cumulative rate cuts of 225 bps since mid-2024. A Reuters poll indicates most economists expect at least two more cuts in 2025, with the first likely in September—though ongoing trade pressure and sticky core inflation remain restraint factors.
Meanwhile, political developments are injecting further uncertainty. New Prime Minister Mark Carney, confronting a mounting trade challenge, has initiated a push to reform Canada’s heavily fragmented internal trade barriers—an effort to foster domestic resilience and offset reliance on U.S. markets. These long-term reforms, while structurally positive, offer no near-term relief for currency-depreciation pressures.
Technical Analysis
USD/CAD has started to ease from its recent bullish advance, stalling near the 1.3750 resistance level after forming a potential lower high on the chart showing a sign that a technical pullback could be developing. The immediate support lies around 1.3650, which also aligns with the 20- and 50-period SMAs. A failure to hold above this zone could expose the pair to further downside, with the next levels of interest at 1.3640 and the key 1.3570 support zone.
Momentum indicators continue to favor the bullish structure, though signs of slowing are emerging. The Relative Strength Index (RSI) is holding at 60, comfortably above the midline but retreating slightly from recent highs, suggesting some moderation in buying pressure. Meanwhile, the MACD remains in positive territory with the histogram holding above the zero line, reflecting sustained upward momentum despite narrowing signal lines.
If sellers regain control, USD/CAD may enter a deeper consolidation or corrective phase, with 1.3570 serving as a critical downside target. Conversely, a clean break above 1.3750 could reestablish bullish momentum.
Resistance Levels: 1.3750, 1.3850
Support Levels: 1.3650, 1.3570
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