The Canadian Dollar (CAD) regained strength against the US Dollar (USD) on Friday, recovering from a two-week low reached during the early Asian trading session. This sharp spike comes on the heels of a historic announcement by US President Donald Trump. He dropped a bombshell – a shocking 35% tariff on all imports from Canada, starting August 1st. Strong surprise positive domestic labor market data topped expectations and sparked a continued CAD recovery. This news provided a boost in sentiment by alleviating fears about the coming tariffs.
In June, Canada created 83,100 jobs, blowing past analysts’ expectations by a factor of three. That tidal wave of job creation helped pull down the unemployment rate, which ticked down to 6.9%. Even with the good labor numbers, average hourly wages have declined slightly. They continued to decelerate to 3.2% YoY, down from 3.5% last month.
During the day’s early trading hours, the USD/CAD pair surged to a daily high of 1.3730. This spike coincided with investor’s knee jerk reaction to tariff announcement by Trump. As the day progressed, the duo nursed losses as low as 1.3675 during the US session. This upward movement represents a rebound in the value of the CAD.
The latest tariffs affect an even more sweeping range of Canadian products. All of these items are subject to being excluded under the United States‐Mexico‐Canada Agreement (USMCA). President Trump justified these tariffs by citing concerns over fentanyl trafficking and trade imbalances between the United States and Canada. He touted the importance of just this move for “rebalancing,” whatever that means, the US$63 billion trade deficit with Canada. This is a very important step to help defend American workers, farmers and manufacturers.
He reiterated Ottawa’s promise to protect Canadian workers and businesses from negative economic effects of the tariffs.
“Throughout the current trade negotiations with the United States, the Canadian government has steadfastly defended our workers and businesses. We will continue to do so as we work towards the revised deadline of August 1.” – Canadian Prime Minister Mark Carney
Carney’s statement undoubtedly highlights Canada’s determination to fight against unfair competitive and trade practices. Canada is deeply engaged in searching for a solution that will protect its economic interests.
In spite of such tensions, this peculiar positive labor market data helped buoy the Canadian Dollar. Economists noted that such robust job growth could bolster consumer spending and economic activity in Canada, potentially offsetting some negative effects from the upcoming tariffs.
As market participants digested the messages read into both the labor numbers and the tariff declaration, they were on the defensive. CAD’s recovery was curtailed by lingering concerns over the future of US-Canada trade relations. Analysts view the job numbers as positive. They caution that the CAD’s medium-to-long-term prospects depend on the outcome of NAFTA negotiations in the weeks ahead.
On his end, Trump conveyed confidence that they could hammer out a better resolution. He made a point of emphasizing the need to expedite regulatory approvals for imports.
“We will do everything possible to get approvals quickly, professionally, and routinely — in other words, in a matter of weeks,” – Donald Trump
This statement from Trump suggests that his administration is keen on implementing changes swiftly, which could further influence market dynamics and trading strategies in both countries.