Aug 06, 2025 (Baystreet.ca via COMTEX) --
July was a bit of a clown show, and President Trump was the Jester-in-Chief. His July 9 tariff deadline morphed into an August 1 start, and throughout the month, global leaders tripped over themselves to appease Trump's demands of "what amounts to a cover charge for access to US markets." The European Union (EU) headlined the list of nations that included Japan, Indonesia, and Vietnam, which accepted higher tariffs on exports to the US. To Trump, they are some form of the "greatest deal ever," despite none of the announcements being legally binding.
U.S. stock indices, including the S&P 500 and Nasdaq Composite, reached new record highs in July. This was driven by a combination of strong second-quarter company earnings, the continued boom in artificial intelligence and tech stocks (especially chipmakers), and a growing sense of optimism about U.S. trade policies.
August kicked off with news that the US employment situation was far weaker than previously reported, after May and June nonfarm payrolls were revised down by 258,000. Trump blamed a Democrat conspiracy for the revisions and promptly fired the head of the Bureau of Labor Statistics.
Fed Governor Adriana Kugler resigned, and Trump is already dropping names that he will consider. The Fed Chair position is also in his sights as he ratchets up his verbal insults about Powell for not lowering interest rates.
Those issues, the usual employment reports, and Trump's August 8 deadline for Russia to make progress on a peace deal with Ukraine (and its inevitable extension) will direct activity in August.
The USD and Federal Reserve
The greenback found a bottom in the first week of July and climbed steadily on the back of better-than-expected economic data, including a somewhat "hot" inflation print. Things changed following "trade deal" announcements, but dollar weakness on improved risk sentiment evaporated after Trump renewed his assault on Powell and the Fed. The greenback continued to climb into July 30 ahead of the FOMC meeting.
The Fed left rates unchanged, but two members, Michelle Bowman and Christopher Waller, voted to cut rates. That development, combined with Fed Chair Powell hinting at lower rates by year-end, knocked the greenback for a loop. The US dollar index (DXY) plunged from 102.6 to 98.56.
The NFP revision has increased odds for September and December Fed rate cuts, although tariff-fueled inflation could derail those hopes.
The Canadian Dollar and Bank of Canada
The Bank of Canada took the easy way out and left interest rates unchanged at 2.75% despite mounting evidence of a deteriorating economic landscape. The Bank is unsure about how tariffs will impact the economy, particularly inflation. They do not want to cut rates and then have to raise them again if inflation starts to rise.
Trump singled out Canada for a 35% tariff imposed on all exports to the US that are not covered under the Canada-United States-Mexico Agreement (CUSMA) on trade, which only impacts about 10% of exports. However, Trump can declare a national emergency for any reason and levy additional tariffs or cancel CUSMA altogether, because US politicians appear to be afraid to oppose him.
The Canadian dollar direction was closely correlated with US dollar moves throughout July, and that relationship should govern price action in August. However, the weak economy and Trump's 35% tariff will limit Canadian dollar gains.
Oil Prices
WTI oil traded in a 64.45-69.00 range for most of July but rallied from 69.00 to 70.46 between July 29-30 due to Trump's threats of even more sanctions against Russia and those nations buying Russian crude, which included India. However, the combination of OPEC increasing production by 545,000 bpd beginning in September and the prospect of Fed rate cuts has oil prices probing the July lows. A move below 64.90 targets 60.00.
Bank 2025-USD/CAD Q3 2025-USD/CAD Q4
Scotiabank* 1.3600 1.3500
BMO 1.3600 1.3500
CIBC 1.3600 1.3500
TD Bank* 1.3800 1.3700
National Bank 1.3900 1.3600
*Forecast is based on last month. Does not include post Tariff moves. Forecast Table is for mid-market rates, and subject to change anytime.
COMTEX_467835701/2559/2025-08-06T11:28:10
