The Canadian dollar is down over 0.3% against the US dollar today following the announcement of new 35% tariffs on Canadian goods. The USDCAD pair rebounded from the resistance zone around 1.373–1.375, supported by calming remarks from Canadian officials. However, the upcoming labor market data could renew upward pressure on the pair.
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Source: xStation5
US-Canada tensions reignite
Earlier this week, it seemed that trade tensions between the US and its largest trading partner (outside the EU) were easing. The recent meeting between Donald Trump and Canadian Prime Minister Mark Carney was marked by flexibility and a shared desire to support North American competitiveness. Both sides agreed to finalize a trade deal by July 21, and Canada subsequently scrapped its planned 3% digital services tax targeting US firms.
However, tensions flared again just days later. Trump announced a retaliatory 35% tariff, citing Canada’s dairy import quotas and the fentanyl crisis. The announcement triggered a sharp weakening of the Canadian dollar, which was partially offset by reassuring comments from Carney and Finance Minister Champagne, who stressed that (1) negotiations are ongoing and Canada — as the largest buyer of US goods — holds a strategic position, and (2) the proposed tariff does not apply to USMCA-compliant goods.
What will the labor market show?
CAD may come under renewed pressure if the labor market report disappoints. Current forecasts point to a modest employment gain of 10,000 (up from 8,800 in May), driven by slight improvements in manufacturing sentiment and overall business confidence. However, worsening trade relations with the US could undermine that progress. Employers are increasingly adjusting hours worked rather than hiring, and as a result, the unemployment rate may rise to 7.1% — underscoring the economy's vulnerability to external political shocks.
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