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Canadian Highlights

• Canada’s labour market took a step back in July after June’s job surge. Despite a sizeable job loss, the unemployment rate remained steady.
• Canadian exports recovered modestly in June, but the trade damage in the second quarter has been done.
• This week’s data inches the Bank of Canada toward a rate cut in either September or October.

U.S. Highlights

• As of August 7th, dozens of U.S. trading partners face significantly higher tariff rates, pushing the U.S. effective rate to roughly 19%.
• July’s reading of ISM services provided further evidence that the U.S. economy is stagnating, with employment, new-orders and business activity all turning lower.
• Following last week’s employment report, Fed officials appear to be pivoting their communication. A September cut is more likely than not.

Canada – Trade Tensions Weighing on Labour Market

Canada’s labour market found itself in choppy waters in July. The nation shed around 40k jobs, coming in well below consensus expectations for a modest gain and unwinding around half of June’s hiring surge. A similar drop in July’s labour force growth kept the unemployment rate steady at 6.9%, a silver lining in an otherwise weak report. Markets reacted by pushing yields on the 2 and 10-year bonds down around 5 bps, while the Loonie depreciated three-tenths of a cent against the U.S.

The labour market is showing clear evidence of loosening in response to U.S. tariffs and broader uncertainty. This is even more pronounced in the performance of more trade-exposed sectors. Of the 180k jobs created since Trump won the presidency, highly export-exposed industries accounted for only 10% of the gain, despite accounting for around a third of total employment (Chart 1). Notably, trade-exposed sectors like manufacturing, natural resources, agriculture, and transportation have experienced outright job losses over the last six months. The path forward is a little less clear, but we expect hiring sentiment to remain weak through the third quarter as firms navigate trade-related headwinds.

We also received Canadian trade data for June this week. Exports managed to edge forward for a second consecutive month, but levels remain depressed compared to March. The slight advance in imports was skewed by a near $2-billion high-value import of equipment for an oil project in Newfoundland. All told, Q2 GDP growth–due out at the end of the month–will likely see a contraction as exports tumbled. Mirroring the trend in labour markets, exports of tariff-impacted sectors are showing signs of underperformance. Chart 2 illustrates that exports of steel, aluminum, copper and energy have suffered more than the rest of the Canadian export basket over the past six months. Encouragingly, shipments to the U.S. as a share of total exports have dropped sharply in recent months, suggesting Canada may be slowly diversifying trade away from the U.S.

Elsewhere, the federal government stepped up its support for the ailing softwood lumber sector. In total, the lumber industry will receive $1.2 billion in financial supports ($700 million in loan guarantees and $500 million in grants and contributions). The lumber industry now joins the automotives and steel/aluminum sectors in receiving direct federal government supports meant to address negative impacts from U.S. trade policy.

We think this week’s events only marginally move the BoC in the direction of a cut at their meeting in September. Markets agree, having re-priced the probability of a 25% bps cut to north of 40% (30% probability prior to the jobs report). Inflation data later this month will be more telling and could move the needle further toward a September cut should core inflation pressures show any signs of easing. Taken altogether, we think there is a strong argument for further rate easing later this year.

U.S. – U.S. Economy Stagnating Just as Tariff Rates Reset

It was a quiet week on the economic data calendar, but with earnings season in full swing, further trade announcements, and several Fed officials out speaking, there were no shortage of developments for investors to sift through. To say this earnings season has gone better than expected would be an understatement. At this point, over 80% of companies included in the S&P 500 have reported second-quarter earnings. According to Reuters, after factoring in analysts’ forecasts for the remaining 20%, profit growth is tracking close to 12% annualized. That’s more than double what was expected just one month ago, and has without question been a driving force sustaining the recent strength in equities. At the time of writing, the S&P 500 is up 2% on the week and 8.5% on the year. Meanwhile, term-yields climbed a bit higher on the week, even after President Trump appointed Stephen Miran to complete Adriana Kugler’s brief remaining term on the FOMC, and more dovish leaning Governor Waller was reported to be the frontrunner for Fed Chair.

But we would argue that the run in equity markets this year is built on a shaky foundation. Inventory stockpiling and a haphazard rollout of the administration’s tariff policies meant that many businesses were able to circumvent or significantly limit tariff exposure last quarter. But that’s not going to continue. As of August 7th, dozens of trading partners now face significantly higher tariffs as per the Executive Order released by the White House on July 31st. By our estimates, the current effective tariff rate in the U.S. is around 19%, or the highest level since 1933 (Chart 1).

Over the near-term, it’s very likely that the U.S. tariff rate pushes even higher. The Trump administration singled out India this week, threatening an additional 25% tariff on August 27th and hinted at further tariffs on semiconductors – potentially as a 100% – and pharmaceuticals over the coming weeks.

While the economy had demonstrated unwavering resilience earlier in the year, more recent data has shown that ground is starting to shift. This week’s ISM services report provided further evidence that the economy is slowing, with the services index slipping to 50.1 or just barely remaining in expansionary territory. Details of the report came with plenty of ‘stagflationary undertones’, with new-orders, business activity and employment all turning lower, while the prices paid sub-component remained near its cyclical high.

The shift in economic data has led Fed officials to pivot on their communication, with regional Fed President’s including Neel Kashkari and Mary Daly – neither of whom are voting members – to suggest that rate cuts are coming in the months ahead. Meanwhile, Governor Cook characterized last week’s tepid jobs report as ‘concerning’ and noted that the significant downward revisions to the May/June figures, which were some of the largest on record, are ‘typical of turning points in the economy’ (Chart 2). Next week’s CPI inflation data will shed more light on the extent of tariff passthrough, but even that is feeling somewhat backward looking given this week’s reset on tariff rates. Ultimately, the weakness in the labor market cannot be ignored and (in our view) solidifies the case for a September rate cut.

Summary

United States: Tariff Headwinds Meet Productivity Tailwinds

• It was a quiet week on the economic indicator calendar, allowing analysts to continue to digest the array of data released last week that provided unambiguous signs of demand materially slowing. Solid labor productivity remains a bright spot, but slowing activity and broadening price pressures in the service sector point to mild stagflation.
• Next week: Consumer Price Index (Tue.), Retail Sales (Fri.), Industrial Production (Fri.)

International: Mixed Data from Foreign Economies Amid Global Uncertainties

• This week, central banks across the U.K., India and Mexico made cautious policy decisions. The Bank of England and Banxico cut rates, while the Reserve Bank of India held steady amid currency stability concerns. Switzerland saw a surprise rise in inflation, and Mexico’s core inflation remained sticky despite headline easing. And finally, down under, soft labor market data in New Zealand supports expectations for a rate cut.
• Next week: Reserve Bank of Australia Policy Rate (Tue.), Norges Bank Policy Rate (Thu.), China Industrial Production and Retail Sales (Fri.)

Interest Rate Watch: For (Term) Premium Subscribers

• In this week's Interest Rate Watch section, we discuss the outlook for the neutral rate and term premiums in the context of the fair value for the 10-year Treasury yield. If we add our estimate of the overnight rate to current estimates of the 10-year term premium, we get a long-run, fair value estimate of the 10-year Treasury yield around 4%, not too far from the current spot rate.

Topic of the Week: Duty Calls

• In a recent escalation of trade policy, the Trump administration announced updated reciprocal tariffs ranging from 10% to 41% on goods from over 60 countries. The overall macroeconomic effect remains uncertain, and while the updated tariffs offer some clarity and stability in the short term, significant uncertainties remain.

Full report here. 

Canadian manufacturing and wholesale trade reports on Friday will be in focus to help gauge the impact that U.S. tariffs are having on the trade-exposed industrial sector.

Early trade reports have been showing most Canadian exports continue to enter the U.S. duty free under an exemption from tariffs for products compliant with the CUSMA. Canada has maintained a relative advantage in accessing the U.S. market.

But, sector specific tariffs on steel, aluminum, and the non-U.S. content of motor vehicle exports, along with new tariffs on copper products in August still apply. Those tariffs are raising costs for U.S. buyers and a slowdown in their manufacturing activity could spill over to Canada, given heavily integrated cross-border supply chains.

Statistics Canada’s advance indicator for manufacturing sales rose 0.4% in June, led by petroleum and coal products likely reflecting a jump in oil prices as well as food manufacturing sales. A rise in manufacturing industrial product prices suggests that real (volume) manufacturing sales were likely little changed compared to May, and still down about 3% from the end of 2024.

We expect core wholesale sales, which exclude petroleum and its products, oilseed and grain, to rise 0.7% from 0.1% in May. Growth appeared to be broad based with five of seven subsectors contributing to the increase.

Meanwhile, early data is expected to continue to confirm that domestic household spending is resilient compared to the externally exposed industrial sector. Early housing reports are pointing to further recovery in home resales in July after plunging consumer confidence sent prospective buyers to the sidelines in the spring.

U.S. consumer prices and spending key for policymakers

In the U.S., the focus will be on inflation on Tuesday and consumer spending on Friday after a softer-than-expected July jobs report increased speculation that the Federal Reserve could cut interest rates sooner than previously expected.

A bounce back in auto sales in July points to an increase in retail sales, but policymakers will also be watching the consumer price index for further signs on whether tariffs are beginning to show up in store prices.

Headline inflation is expected to remain steady at 2.7% year-over-year as a modest rise in food prices will likely be offset by a decline in energy costs. Meanwhile, core inflation, which excludes food and energy, is projected to edge slightly higher to 3% from 2.9% in June on an annual basis.

The mood in financial markets has remained upbeat towards the late summer as peak uncertainty over US trade policies appears to ease. Even if the US July Jobs Report showed that employment growth has been clearly weaker than previously thought, economic surprise indices have otherwise stabilized at neutral or slightly positive levels across all major economies. Risky assets, like equities have performed well while most measures of implied volatility are hovering near long-term median levels.

The array of updated tariff rates, which now cover practically all major US trading partners, took effect yesterday. US importers paid more tariffs for their H1 imports than they did during the entire 2024 despite unusually low import volumes after April's Liberation Day.

Firms have likely drawn down their front-loaded inventories while anticipating further clarity on tariffs. And at the same time, the latest July trade data from China revealed that Chinese firms have diversified their exports towards third countries especially in South-East Asia. But as the broad-based tariffs leave little room for re-routing, US importers will eventually have to accept further increases in tariff costs towards the fall. This week's ISM services index provided sense of the stagflationary risks that might await ahead, as growth in business activity and new orders slowed down while the sub-index for price pressures reached its highest level since October 2022.

The combination of upside risks to inflation and downside risks to growth continues to divide views across the world's central bankers. This week, Bank of England cut its policy rate by 25bp, but the decision was closer than expected, with four out of nine committee members voting against the cut. Read more from our BoE Review, 7 August.

On the other side of the Atlantic, Trump nominated Stephen Miran to temporarily fill the vacant seat in the FOMC after Adriana Kugler stepped down from the Board of Governors last week. Miran, who is known as a Trump loyalist and as the author of the article outlining the so-called 'Mar-a-Lago accord', has downplayed the inflation risks related to tariffs and called for structural reforms within the Fed. The nomination will still need to be approved by Senate, which reconvenes after its summer recess on 2 September. While his term will last only until the end of January, he will likely be among the candidates for the next 14-year term as well. The search for Fed chair Powell's successor continues as well, and after Treasury Secretary Scott Bessent ruled himself out of the considerations, top contenders include Christopher Waller, Kevin Warsh and Kevin Hassett.

On the geopolitical front, Trump is scheduled to meet Russian president Putin over the coming days to discuss the war in Ukraine, after US special envoy Witkoff visited Moscow this week. The exact time and location of the meeting are still unclear, but we remain doubtful that major breakthroughs will be reached. US imposed an additional 25% tariff on India yesterday to curb the country's imports of Russian oil.

Next week, the focus will remain on the US as the July CPI is due for release on Tuesday. We expect headline inflation to land at +0.2% m/m SA (2.8% y/y) but core inflation to accelerate to +0.3% m/m SA (3.0% y/y) as tariff costs ramp up.

Full report in pdf. 

WTI oil traded within a narrow range on Friday as steep fall of past six days started to run out of steam.

Oil came under increased pressure from recent decision of OPEC+ to further increase production, darkened economic outlook after US import tariffs were implemented, with the latest signals of potential meeting of US President Trump and Russian President Putin for peace talk, adding to weakened sentiment.

The WTI contract is on track for the weekly loss of over 4% (the biggest weekly fall since the third week of June), following previous week’s strong upside rejection at psychological $100 barrier and formation of a bull-trap.

Fresh bears cracked pivotal $64.00 support (Fibo 61.8% retracement of $55.40/$77.88 rally / the low of June 22 massive fall) but need to register sustained break here to confirm negative signal of bearish continuation of the downtrend from $77.88 (June 22 peak) and expose next targets at $60.71 (Fibo 76.4%) and $60.00 (psychological).

Meanwhile, bears are likely to take a breather on oversold daily studies and end-of-the-week profit-taking.

Broken 100DMA ($64.70) offers immediate resistance, with potential extended upticks to be capped under $66.50 zone (converged 10/20/55 DMA’s / daily cloud base) to keep larger bears in play.

However, market participants remain very cautious about the peace talks and its outcome, as talks failure scenario remains on the table and in such case oil price would be strongly inflated by strong change in sentiment as Trump’s secondary sanctions on buyers of Russian energy will be likely activated and spark fresh turbulence in oil markets.

Res: 64.88; 65.96; 66.50; 66.83.
Sup: 63.16; 62.18; 61.24; 60.71.

USDCAD rises from a disappointing Canadian Employment number.

The data which came at -40.8K vs 13.5K expected , takes out half of the past month's upwards surprise (+83K) and looking at the detail, full-time employment saw the most regression (-51K) while part-time employment rose by a small margin.

Overall, the unemployment rate came as expected (6.9% vs 6.9% exp) but overall, Canada has been struggling with job creation for a while now.

Canadian Employment data tends to be pretty volatile, especially during summer.

In the meantime, the Loonie had appreciated a bit against the US Dollar in the past few days. With not many factors prompting participants to buy the CAD, it was more a selloff in the Greenback which took the pair to retest the highs of the past month range.

Let's take a detailed look at USDCAD.

USDCAD Multi-timeframe analysis

USDCAD Daily Chart

USDCAD Daily Chart, August 8, 2025, Source: TradingView

Despite the strong rally at the end of July, the pair holds within its 2025 downwards channel.

RSI Momentum saw a deceleration of bullish momentum after last Friday's US Jobs data that also disappointed, but stays above the neutral line.

Holding the channel will be the element to look at on higher timeframes for the pair.

Let's take a closer look to spot how the miss impacted the Loonie.

USDCAD 4H Chart

USDCAD 4H Chart, August 8, 2025, Source: TradingView

The pair rose about 200 pips after this morning's data, but buyers are stepping against a downwards intermediate trendline (blue).

Bullish momentum is gathering and the rest is to see if the 1.37630 highs can be broken

A lack of more conviction from buyers could leave the pair ranging for the day – For future outlooks, keep an eye on the action being constrained within the 4H MA 200 (as support – 1.3699) and the 4H MA 50 as resistance (1.3783)

Breaking below the pivot zone would also mean a re-entry of the June/July range between 1.3550 to 1.3750.

Key levels for the pair

Support Levels:

• range highs turned pivot 1.3750
• Intermediate support Zone 1.3660
• 1.3550 (2025 Lows, Main Support)

Resistance Levels:

• 1.3850 Main Resistance
• 1.38 intermediate Resistance
• 1.3783 4H MA 50

USDCAD 1H Chart

USDCAD 1H Chart, August 8, 2025, Source: TradingView

Buyers are stepping in strong – For the rest of the price action, the element to track is whether buyers break the imminent downwrads trendline that is just getting tested.

Daily highs: 1.3773
Daily lows: 1.3722

Safe Trades!

Canada's economy lost 41k jobs on net in July (-0.2% month/month), weaker than consensus expectations. The details were similarly weak, with job losses concentrated in full-time positions (-51k) and in the private sector (-39K).

The unemployment rate held steady at 6.9% in June, as the labour force shrunk (-33k). Despite the flat headline, the share of people who have been unemployed long term (>27 weeks) was the highest since 1998 at 23.8%.

Youth bore the brunt of a cooler labour market on the month (-34k, -1.2% m/m). Younger Canadians continue to face a tough job market, with the unemployment rate at 14.6%, the highest since 2010 (ex-pandemic).

Job losses were broad-based across goods and services sectors. The biggest losses were seen in information, culture and recreation (-29k, -3.3% m/m), construction (-22k, -1.3% m/m), business building and other support services (-19k, -2.8% m/m) and health care and social assistance (-17k, +0.6% m/m). Notable job gains were seen in transportation and warehousing (+26k, +2.4% m/m).

Wage growth was steady in July. Average hourly wages rose 3.3% versus a year ago, up slightly from 3.2% in June.

Key Implications

Canada's labour market gave back half of June's outsized job gains in July. Employment tallies have always been volatile in the Labour Force Survey, with the unemployment rate being the key metric to watch. The unemployment rate did hold steady, but given it was due to declining labour force participation, is not a very positive sign. We expect the stagnation in labour force growth to continue, which will keep the unemployment rate from rising too high, despite weak labour demand.

The Bank of Canada has a fair bit of time before it's next rate setting date on September 17th. Today's jobs report likely won't move the needle much on the Bank's thinking on the economy relative to its recent monetary policy report. We think a strong argument for further rate cuts remains in Canada, we'll see if the BoC agrees.

Daily Pivots: (S1) 1.1617; (P) 1.1658; (R1) 1.1705; More...

Intraday bias in EUR/USD is turned neutral first with 4H MACD crossed below signal line. Further rise is expected as long as 1.1526 support holds. As noted before, correction from 1.1829 should have completed with three waves down to 1.1390. Above 1.1698 will target 1.1788/1820 resistance zone. On the downside, however, break of 1.1526 minor support will dampen this view and bring retest of 1.1390 instead.

In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will remain the favored case as long as 1.1604 support holds.

Daily Pivots: (S1) 1.3371; (P) 1.3410; (R1) 1.3484; More...

GBP/USD's rise from 1.3140 is in progress and intraday bias stays on the upside. As noted before, correction from 1.3787 should have completed with three waves down to 1.3140. Further rise should be seen to 1.3587 resistance. Firm break there will target 1.3787 high. On the downside, below 1.3344 minor support will turn intraday bias neutral again first.

In the bigger picture, up trend from 1.3051 (2022 low) is in progress. Next medium term target is 61.8% projection of 1.0351 to 1.3433 from 1.2099 at 1.4004. Outlook will now stay bullish as long as 55 W EMA (now at 1.3049) holds, even in case of deep pullback.

Daily Pivots: (S1) 146.66; (P) 147.18; (R1) 147.68; More...

Sideway trading continues in USD/JPY and intraday bias remains neutral. As long as 145.84 support holds, larger rebound from 139.87 is still in favor to continue. On the upside, above 148.07 minor resistance will bring stronger rebound back to retest 150.90. However, on the downside, firm break of 145.84 support will argue that whole rise from 139.87 might have already completed. Deeper fall should then be seen to 142.66 support for confirmation.

In the bigger picture, price actions from 161.94 (2024 high) are seen as a corrective pattern to rise from 102.58 (2021 low). Decisive break of 61.8% retracement of 158.86 to 139.87 at 151.22 will argue that it has already completed with three waves at 139.87. Larger up trend might then be ready to resume through 161.94 high. In case the corrective pattern extends with another fall, strong support is expected from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound.