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Trump waved a 35% heavy hammer to Canada, and the Canadian dollar hit a new low in more than two months after six consecutive declines!
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Hello everyone, today XM Forex will bring you "[XM Forex Market Review]: Trump waved a 35% heavy hammer to Canada, and the Canadian dollar hit a new low in more than two months after six consecutive declines!" Hope it will be helpful to you! The original content is as follows:
On Friday (August 1), the US dollar rose and fell against the Canadian dollar, once setting a new high since May 22 to 1.3869, and has now fallen slightly to around 1.3850. The exchange rate has risen for six consecutive trading days. US President Donald Trump unexpectedly raised Canadian tariffs to 35%, coupled with hawkish Fed speeches, driving the dollar to rise against the Canadian dollar. Canada's S&P/TSX xm-forex.comprehensive index closed down 0.4% on Thursday to close at 27,259.78, maintaining an upward channel.
Trump unexpectedly raised Canadian tariffs to 35% on Thursday (July 31), making headlines. The White House pointed out in a statement that the tax increase was "to deal with Canada's ongoing inaction and retaliation", and said that the president "determines it necessary to effectively respond to the current emergency situation by raising the tax rate." But this time, due to the exchange rate that has been strengthened by the hawkish speech of the Federal Reserve, has little impact on the Canadian dollar.
Jerome Powell's hawkish tone and solid U.S. data earlier this week kept the dollar stronger, with the dollar/Canadian momentum continuing to rise ahead of Friday's job report, which could determine whether the currency was tested against 1.3900.
Trump raises Canadian tariffs
Trump unexpectedly raises Canada's tariff rate from 25% to 35%, and the new tax rate will take effect on August 1.
The move is based on emergency powers and is blamed on Canada's "continued inaction and retaliation" in response to the worsening fentanyl crisis described by the Trump administration. Although goods covered by the US-Mexico-Canada Agreement are still tax-free, the White House said it will be transferred to avoid tariffsProducts will face a 40% tariff.
The White House pointed out that record-breaking seizures of fentanyl were seized at the "super laboratory" in western Canada and the northern border, saying that Ottawa "had failed to arrest drug traffickers, seize illegal drugs, and failed to cooperate with US law enforcement."
Trump initially imposed a 25% tariff in February, but said further action was "necessary and appropriate" after Canada failed to respond ideally.
The White House said in an official statement that “Canada has ample opportunity to take action” and promised to hold Ottawa accountable while putting U.S. national security “first.”
The Fed's expectation of a rate cut has dropped sharply, and strong data has boosted the US dollar
The Fed's actions partially reflect the impact of U.S. import tariffs on the economic growth and inflation outlook of the U.S. and Canada. Recent interest rate differences have favored the U.S. dollar and contributed to the rebound of the U.S. dollar against the Canadian dollar in the past two weeks.
The following figure shows that the values are -0.79 and 0.86 respectively by xm-forex.comparing the curve of the Fed's benchmark interest rate change in 2025 and the difference in the yield of the two-year Treasury bonds between the United States and Canada. Shows a relatively good negative correlation.
The U.S. data performance over the past month has been impressive, with the Citigroup Economic Surprise Index (CESI) rising to its highest level since February. The indicator tracks data's performance relative to expected performance, paying more attention to recent data to provide insights into short-term trends.
The reading was 14.7, indicating that the recent data exceeded expectations and was less than expected, resulting in a sharp reversal in the market's pricing of the Federal Reserve's interest rate cut this year.
Before the release of the US July non-farm employment report on Friday, market pricing showed that the Fed's interest rate cut this year was the lowest since February, with only 29 basis points. Although it is now August, it is more prominent that even with tariff uncertainty, the resilience of US economic activity is still far beyond expectations - which has led to the market's expected rate cut in July, which has shrunk by more than half of the expected rate cut this year.
At present, the market expects a xm-forex.complete rate cut to not be implemented until December, and the possibility of a rate cut next month is less than 50% - a significant change xm-forex.compared to expectations just a few days ago.
While the Fed's expectations of not cutting interest rates in 2025 are strengthening, this expectation could change significantly if the non-farm employment report released later on Friday is weak.
Unemployment rate is a data that needs to be paid attention to, because it is the indicator that the Federal Reserve values the most; the market expects that the unemployment rate will rise by 0.1 percentage point to 4.2%, returning to half of the unexpected decline in June. The number of non-agricultural employment is expected to increase by 110,000, down from the previous 147,000.
Although the market tends to react to non-farm employment initially, if that data diverges from the unemployment rate, it may ultimately be the latter that dominates the market.
Technical Analysis: US dollar tends to buy on dips
The morning star pattern xm-forex.completed after the rise last Thursday is based onWeekly trends provide excellent signals, with the USD/CAD soaring from below 1.3600 to above 1.3800, breaking through horizontal resistance of 1.3650 and 1.3750 and 50-day EMA.
As RSI (14) rises and MACD crosses the signal line and enters the positive area, the momentum remains bullish, and it tends to buy when the dips and buy when the second breakout.
1.3900 resistance is the first obstacle that bulls need to break through. After breaking through, they will point to the resistance around April 3 lows of 1.4023 and the 200-day moving average 1.4047.
In the downward direction, the neckline of the triple bottom of 1.3750 is the key point and is an important support for understanding the profits of funds before the employment report.
Buying may also exist below 1.3800.
The above content is about "[XM Forex Market Review]: Trump waved a 35% heavy hammer to Canada, and the Canadian dollar hit a new low in more than two months after six consecutive declines!" The content is carefully xm-forex.compiled and edited by the editor of XM Forex. I hope it will be helpful to your trading! Thanks for the support!
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