The loonie is one of the currencies experiencing the most pressure today, trading at the two month lows on its US counterpart. It means that Canada’s GDP contracted by 0.1% in May with no advanced warning. Another signal of a developing bad news trend for the Canadian economy. Combined impacts from a continuing trade war with the United States have increased tariffs on Canadian goods. Consequently, GDP fell by historic margins through April and May.
Amidst this backdrop of economic developments, the nominal USD/CAD “story” is increasingly being characterized by historic movements. Traders and investors are watching these wild price swings with interest. This would mark a sixth consecutive daily advance for the USD/CAD pair, gaining 1.9% in total. As of writing, USD/CAD is sitting at 1.3875 after having cleared the major resistance level at 1.3859. As of today, it’s attempting to back-test that same resistance at 1.3868 but is in the red down -0.13% on the day. Analysts warn that should the bullish march persist, the next notable resistance line might be at 1.3884.
Economic Indicators and Trade Relations
The recent economic indicators are bad news for all of Canada. With their GDP barely declining at all, their external pressures complicate the question of how sustainable that growth is. The US-China bilateral trade war continues to escalate. President Trump’s newly announced 35% tariff on all products from Canada effective August 1 has added even further chaos to the market.
Bank of Canada officials have commented on these unpredictable circumstances, highlighting that “some level of uncertainty will continue,” according to Governor Macklem. This uncertainty would weigh on consumer confidence and spending patterns in Canada, adding additional complexity to already hazardous economic conditions.
Today, the US releases its June employment report. Analysts project a small decrease in nonfarm payrolls from 147 thousand in May to about 110 thousand, with market watchers eagerly anticipating the impact of this data on currency exchange rates.
Market Reactions and Predictions
As the recent trends in USD/CAD reveal, traders have taken to the markets in response, looking to both local and global signals. Specifically, USD/CAD is in the process of testing some crucial support levels. Analysts have pointed to 1.3843 and 1.3834 as possible support if the currency pair continues to slide.
The succesive increase in USD/CAD is simply a part of a larger phenomenon that sees the Canadian dollar melt in the face of the US dollar. Given all this uncertainty, traders are remaining extremely cautious in the market. On both sides of the border, they look to developments that may affect exchange rates with eager anticipation.
“Canadians will be our own best customer.” – Canada’s Prime Minister Mark Carney
In light of these challenges, Prime Minister Mark Carney has emphasized that Canadians can bolster their own economy by becoming their “own best customer.” This statement underscores a call for domestic consumption and support for local businesses as a means to navigate through turbulent economic times.
Implications for Consumers and Businesses
Currency fluctuations and other economic indicators have consequences that are global in scope. Their effects are directly felt by Canadian consumers and businesses. A previously weakened Canadian dollar contributes to widespread price increases on imported goods, further straining household budgets.
Export-dependent businesses and industries would take a hit. Increased chief tariffs on Canadian goods will negatively affect their ability to maintain competitiveness in worldwide markets. When faced with greater certainty and clarity, companies will begin to search out strategies. These strategies will allow them to reduce hazards posed by currency and trade instability.