USD/CAD outlook undermined by tariffs news: FOREX Friday

• USD/CAD outlook starting to shift cautiously bullish amid tariff tensions
• Trump’s 35% tariff on Canada reignites US-Canada trade concerns
• Canadian jobs data coming up; US CPI next week

 

The USD/CAD outlook took a bit of turn overnight as traders digested a fresh wave of trade policy headlines. US President Donald Trump’s surprise announcement of a 35% tariff on some Canadian goods, with a possible 15-20% blanket tariff for other nations, has hit risk sentiment. The Canadian dollar felt the pressure immediately, although it stopped falling further on investor realisation that some USMCA goods are still exempt for now. Still, the uncertainty alone has shaken the Loonie, and undermined risk appetite for stocks. The USD/CAD faces increased volatility from data with key Canadian jobs report coming up shortly, before the focus turns to US inflation and retail sales data next week. The US dollar has started to show a few signs of revival in recent days, with investors expecting higher inflation as a result of tariffs, and therefore limited rate cuts by the Fed.

 

Loonie vulnerability growing ahead of jobs data

 

The latest tariff news only magnifies the importance of today’s Canadian jobs report. The market is already bracing for a soft +1K headline figure, and anything weaker could send USD/CAD soaring, potentially paving the way towards the 1.40 mark. With previous reports already on shaky ground, confidence in the Canadian labour market is hanging by a thread. Indeed, the unemployment rate is seen rising to 7.1% from 7.0% the month before.

 

US dollar edges higher as focus turns to inflation and Fed policy

 

On the US side, the dollar has pushed higher this week, lifting the Dollar Index to test the broken April low of 97.92 area, and important technical zone. The greenback has been lifted in part because of surprising strength in US data. Yesterday for example saw the weekly jobless claims again surprise to the upside, with a print of 227K versus the expected 235K. That’s the fourth straight week of declines and marks a 7-week low, reinforcing the narrative that the labour market remains tighter than expected.

 

Combine that with Trump’s tariffs and the “big, beautiful” spending and tax plans, and the possibility of stickier inflation cannot be ignored. While the Fed is still expected to cut rates in September, growing inflation risks could slow the pace of cuts beyond that — a development that would potentially support the dollar and keep USD/CAD outlook on a bullish track.

 

USD/CAD outlook: Technical analysis

 

 

The broader setup is increasingly pointing to a bottoming process for the pair. After rebounding off the 1.3500–1.3600 zone — a region that fuelled a major rally last September — the USD/CAD is once again testing a descending trend line on the daily chart, near the key 1.3700-1.3750 area. We’ve seen a modestly higher low since mid-June, hinting at early reversal signs, but bulls need confirmation via a clean breakout above this line.

 

So, from a technical and macro perspective, the USD/CAD outlook is growing more bullish by the day. The pair is attempting to form a base, trade tensions are working against the Canadian dollar, and the US dollar is flexing its muscles in a risk-off climate. The path to 1.38 and 1.40 is open — but only if key technical hurdles are cleared and the data continues to cooperate. Keep an eye on today’s Canadian jobs report — it might just be the spark for the next leg higher.

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R