Canadian dollar falls for six consecutive days: the market awaits the test of the August 1 mark
2025-07-31 21:59:35
On Thursday (July 31st), the USD/CAD exchange rate traded around 1.3840 during the North American session. It briefly touched 1.3853, a near two-month high, marking the sixth consecutive day of downward pressure on the Canadian dollar. The current market focus is on trade uncertainty ahead of the tariffs set to take effect on August 1st, while solid US economic data is supporting the US dollar, keeping the Canadian dollar under pressure.
Recently, the core pressure on the Canadian dollar comes from three aspects: tense trade situation, weak economic data and the systemic strength of the US dollar.
First, US President Trump reiterated pressure on Canada in his latest statement, stating that if a new bilateral trade agreement is not reached by August 1, a 35% tariff will be imposed on Canadian goods not covered by the USMCA, with higher tariffs on key categories such as copper and pharmaceuticals. This statement directly triggered market concerns about a deteriorating export environment for Canada and became a key catalyst for the continued weakening of the Canadian dollar.
Secondly, Canada's economic fundamentals are showing signs of weakness. Statistics Canada data showed that GDP fell by 0.1% month-on-month in May, marking the second consecutive month of decline, primarily due to a slowdown in the goods-producing sector. Although the service sector remained generally flat, overall economic momentum remains fragile. Previously, the Bank of Canada (BoC) maintained its benchmark interest rate at 2.75%, emphasizing that while inflation is close to its 2% target, potential upward pressure remains. If the economy continues to weaken, further rate cuts cannot be ruled out.
Finally, US economic data reinforced the dollar's bullish stance. The core PCE price index rose 0.3% month-over-month in June, remaining at 2.8% year-over-year, slightly exceeding expectations. Personal income rose 0.3% month-over-month, and initial jobless claims fell to 218,000, demonstrating the continued strength of the US consumer and job markets. This series of data reinforced the dollar's safe-haven and interest rate differential advantages, exacerbating the passive pressure on the Canadian dollar.
The USD/CAD exchange rate is showing a clear upward trend based on the hourly candlestick chart. The middle Bollinger Band is at 1.3824, the upper Bollinger Band is at 1.3850, and the lower Bollinger Band is at 1.3798. The exchange rate is currently trading between the middle and upper Bollinger Bands, indicating a short-term bullish trend.
The MACD indicator's fast and slow lines are above the zero axis, while the relative strength index (RSI) is at 62.89, not yet reaching the overbought zone, suggesting further upside potential in the short term. Analysts believe that the key short-term resistance level is 1.3860, and if it is successfully broken, it may target 1.3880. Support below is 1.3798 and 1.3740.
Traders are generally concerned about the potential impact of tariffs on August 1st, and bearish sentiment on the Canadian dollar continues to intensify. Based on volume and price performance, US dollar bulls continue to increase their positions, while the Canadian dollar lacks substantial positive support. The RSI is at a mid-to-high level but not yet extreme, indicating that while bullish sentiment prevails, the market remains cautious about breaking through key resistance levels. Analysts believe that if there is no substantial progress in trade negotiations, bearish sentiment on the Canadian dollar is likely to persist, making the exchange rate more likely to rise than fall.
In the short term, the exchange rate is still in an upward channel dominated by bulls. Analysts believe that if the 1.3860 resistance level is broken, the bulls may further test the 1.3870-1.3900 range; however, there is a certain risk of a technical correction after the continuous rise. If the trade news eases or the US dollar is short-term profit-taking, the exchange rate may retrace to the 1.3798 support level.
In the medium to long term, the Canadian dollar's trajectory will continue to hinge on bilateral trade relations and Canadian economic data. Analysts believe that if continued economic weakness triggers further easing by the Bank of Canada, the exchange rate could reach new highs. Conversely, if trade frictions ease and market sentiment reverses, the Canadian dollar could experience a temporary rebound.
Fundamentals
Recently, the core pressure on the Canadian dollar comes from three aspects: tense trade situation, weak economic data and the systemic strength of the US dollar.
First, US President Trump reiterated pressure on Canada in his latest statement, stating that if a new bilateral trade agreement is not reached by August 1, a 35% tariff will be imposed on Canadian goods not covered by the USMCA, with higher tariffs on key categories such as copper and pharmaceuticals. This statement directly triggered market concerns about a deteriorating export environment for Canada and became a key catalyst for the continued weakening of the Canadian dollar.
Secondly, Canada's economic fundamentals are showing signs of weakness. Statistics Canada data showed that GDP fell by 0.1% month-on-month in May, marking the second consecutive month of decline, primarily due to a slowdown in the goods-producing sector. Although the service sector remained generally flat, overall economic momentum remains fragile. Previously, the Bank of Canada (BoC) maintained its benchmark interest rate at 2.75%, emphasizing that while inflation is close to its 2% target, potential upward pressure remains. If the economy continues to weaken, further rate cuts cannot be ruled out.
Finally, US economic data reinforced the dollar's bullish stance. The core PCE price index rose 0.3% month-over-month in June, remaining at 2.8% year-over-year, slightly exceeding expectations. Personal income rose 0.3% month-over-month, and initial jobless claims fell to 218,000, demonstrating the continued strength of the US consumer and job markets. This series of data reinforced the dollar's safe-haven and interest rate differential advantages, exacerbating the passive pressure on the Canadian dollar.
Technical aspects:
The USD/CAD exchange rate is showing a clear upward trend based on the hourly candlestick chart. The middle Bollinger Band is at 1.3824, the upper Bollinger Band is at 1.3850, and the lower Bollinger Band is at 1.3798. The exchange rate is currently trading between the middle and upper Bollinger Bands, indicating a short-term bullish trend.
The MACD indicator's fast and slow lines are above the zero axis, while the relative strength index (RSI) is at 62.89, not yet reaching the overbought zone, suggesting further upside potential in the short term. Analysts believe that the key short-term resistance level is 1.3860, and if it is successfully broken, it may target 1.3880. Support below is 1.3798 and 1.3740.
Market Sentiment Observation
Traders are generally concerned about the potential impact of tariffs on August 1st, and bearish sentiment on the Canadian dollar continues to intensify. Based on volume and price performance, US dollar bulls continue to increase their positions, while the Canadian dollar lacks substantial positive support. The RSI is at a mid-to-high level but not yet extreme, indicating that while bullish sentiment prevails, the market remains cautious about breaking through key resistance levels. Analysts believe that if there is no substantial progress in trade negotiations, bearish sentiment on the Canadian dollar is likely to persist, making the exchange rate more likely to rise than fall.
Market Outlook
In the short term, the exchange rate is still in an upward channel dominated by bulls. Analysts believe that if the 1.3860 resistance level is broken, the bulls may further test the 1.3870-1.3900 range; however, there is a certain risk of a technical correction after the continuous rise. If the trade news eases or the US dollar is short-term profit-taking, the exchange rate may retrace to the 1.3798 support level.
In the medium to long term, the Canadian dollar's trajectory will continue to hinge on bilateral trade relations and Canadian economic data. Analysts believe that if continued economic weakness triggers further easing by the Bank of Canada, the exchange rate could reach new highs. Conversely, if trade frictions ease and market sentiment reverses, the Canadian dollar could experience a temporary rebound.
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