Canadian Dollar Weakens for Fifth Day on US Growth and BoC's Neutral Stance

Today's expected range for the Canadian Dollar against the major currencies:

US Dollar        1.3720-1.3970

Euro                 1.5720-1.5970

Sterling            1.8200-1.8440

WTI Oil (opening level) $69.65

The CAD/USD is opening at 1.3848 ( 0.7221 )

CAD extends losses for the fifth consecutive session against the USD, as the USD continues its broad-based rally following stronger-than-expected US economic data. Adding to the bearish pressure on the CAD, the Bank of Canada (BoC) left its benchmark interest rate unchanged at 2.75%, as widely anticipated. The combination of robust US data and a cautious BoC stance is fueling upward momentum in USD/CAD. 

The BoC’s decision to hold its policy rate at 2.75% signals a cautious stance as officials balance persistent core inflation with signs of slowing domestic growth and rising trade uncertainty. While headline inflation has moderated, core inflation remains stubbornly above 3%, leaving policymakers hesitant to ease too soon. In its accompanying statement, the BoC acknowledged signs of moderation in economic activity but emphasized that inflation risks remain tilted to the upside, particularly amid ongoing wage growth and resilient consumer spending.

The central bank also flagged ongoing uncertainty surrounding US-Canada trade relations as a growing downside risk. “While some elements of US trade policy have started to become more concrete in recent weeks, trade negotiations remain fluid, threats of new sectoral tariffs continue, and US trade actions remain unpredictable,” the BoC noted in its policy statement.

Headlines

·    The Fed maintained rates at 4.25%–4.50% for the fifth consecutive meeting, with two governors dissenting for a cut, a dual dissent not seen since 1993. Policymakers noted economic activity moderation in H1, contrasting earlier solid growth assessments. Unemployment remains low, inflation elevated, and economic uncertainty persists.

·    The Bank of Japan left its policy rate unchanged at 0.50% as expected overnight and raised its core inflation outlook more than expected to 2.7% for the current fiscal year to end March 2026 from 2.2% previously, which would theoretically indicate higher odds of policy tightening, but while the yen rallied, Japanese rates (BoJ Governor Ueda will be out speaking just after this is being written and will provide more guidance).

·    According to the US July ADP employment data, US private businesses added 104,000 jobs in July 2025, surpassing the expected 75,000 and marking the strongest gain since March. The service sector contributed 74,000 jobs, led by leisure and hospitality (+46,000), financial activities (+28,000), and trade, transportation, and utilities (+18,000), while education and health services lost 38,000 jobs.

·    Trump asserted that the August 1st deadline is firm and won't be extended, adding that India will face a 25% tariff plus a penalty for importing Russian oil starting August 1st. He also imposed 50% tariffs on Brazilian goods, citing a “witch hunt” by former president Bolsonaro, and a 15% deal was agreed with South Korean on goods imports.

·    Trump surprised the copper market by excluding some types of copper, including the most commonly traded refined copper in his 50% tariff plans for the metals, which triggered a massive slide in US copper futures.

·    Japan's retail sales rose 2.0% year-on-year in June 2025, up from 1.9% in May and above the expected 1.8%, marking the 39th straight month of growth, supported by rising wages.

·    The US economy grew 3% annualized in Q2, according to the first estimate of GDP growth for the quarter, beating expectations of 2.4% and rebounding from a 0.5% Q1 contraction. Growth was driven by a 30.3% plunge in imports and faster consumer spending (1.4% vs 0.5% in Q1), led by goods (2.2% vs 0.1%). It marked the tamest consecutive quarterly growth since the pandemic.

Key Points

·    Equities: Fed holds rates, Powell cautious; Meta and Microsoft surge; European earnings mixed

·    Volatility: VIX eases to 15.5; expected SPX move ±21 pts today, ±51 pts for week

·    Digital assets: Bitcoin steady at $118.4k; Ether gains; IBIT and ETHA slightly lower

·    Fixed Income: Market lowers anticipation of Fed easing after Fed Chair Powell presser

·    Currencies: US firmed on jobs data and hawkish Fed, but JPY rebounds sharply overnight post BoJ inflation forecast raise.

·    Commodities: US copper suffers worst ever day on Trump tariff exemptions.