Canada Faces 35% Tariffs from US Amid Failed Trade Negotiations

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

US Dollar        1.3730-1.3980

Euro                 1.5720-1.5970

Sterling            1.8120-1.8380

WTI Oil (opening level) $69.05

The CAD/USD is opening at 1.3874 ( 0.7208 )

The non-farm payroll number just came out and it saw a rise of 73 k in July, but the market was expecting 110 k. It is a big miss and the market has reacted quickly with the price of gold moving from 3292 to 3333 in a few minutes.

USD/CAD moved from 1.3875 to 1.3829 in 10 minutes.

The market reaction to the news was negative to the USD, since the unemployment rate will now move from 4.1% to 4.2%. This reading on the labour market will keep the central banks in the USA from moving from their current levels of 4.5% interest rates.

On the political front Canada was not able to negotiate a deal by the August 1st date, and will now be faced with 35% tariffs from the USA. This is seen as a failure/ disappointment in the markets and likely why the market has moved the currency to weaker positions for the previous 5 days.

The reaction to payroll numbers are likely to be a blip on the horizon and this is likely a buying opportunity in the short term. 

Headlines

·    Trump signed an executive order imposing reciprocal tariffs between 10% and 41% on U.S. imports from various countries. India's exports to the U.S. face a 25% tariff, Taiwan's 20%, Switzerland’s a staggering 39%, and South Africa's 30%. Additionally, Trump raised tariffs on Canadian goods from 25% to 35%, according to the White House.

·    The US PCE price index rose 0.3% in June, its highest in four months, after a 0.2% increase in May, as expected. Goods prices increased by 0.4% and services by 0.2%. The core PCE index, excluding food and energy, matched forecasts with a 0.3% rise, following a 0.2% rise in May. Food prices went up 0.3%, while energy prices rebounded 0.9% after a 1% drop. US core PCE price index rose 0.3%, the largest increase in four months, matching market expectations.

·    US weekly initial jobless claims rose by 1,000 to 218,000, below market expectations of 224,000 and near a three-month low. Outstanding claims held steady at 1,946,000, slightly down from 2021 highs of over 1,960,000, indicating a robust labor market despite a steady slowdown in hiring.

·    Germany's annual inflation rate remained at 2% in July 2025, unchanged from June and above market expectations of 1.9%. Food prices increased to 2.2%, while energy costs decreased less at -3.4%. Service inflation slowed to a three-year low of 3.1%.

·    Japan's unemployment rate stayed at 2.5% in June 2025 for the fourth month, matching market estimates. The number of unemployed remained at a three-month low of 1.72 million, while employment fell by 50,000 to 68.32 million. The labor force dropped by 40,000 to 70.04 million, and those outside the labor force decreased by 50,000 to 39.57 million..

Key Points

·    Equities: US and EU stocks fall, tariffs and weak earnings weigh, Microsoft/Meta rally

·    Volatility: VIX rises to 16.7, short-term vols jump, SPX expected move ±47 pts

·    Digital assets: Bitcoin $115.6k, Ether $3.68k, altcoins weaker, ETF flows stay positive

·    Fixed Income: US treasury yield volatility declines to three-year low ahead of July US jobs report

·    Currencies: JPY very weak post BoJ. USD rally slows ahead of US jobs report.

·    Commodities: Silver under pressure on copper’s huge slide