New US tariffs on $20bn of Canadian goods and softer inflation data halt the Canadian Dollar’s recovery against the USD.
The Canadian Dollar’s rebound from 1.4250 to 1.40 against the USD has stalled, as June inflation data fell short of expectations and new US tariffs added pressure. Headline CPI slowed to 2.8% year-over-year, while core inflation dipped to 1.8%, its lowest since December 2020.
Failure to reclaim the 50-day moving average at 1.3991, combined with the 50% tariffs on $20bn of Canadian exports, complicates the currency’s mean-reversion outlook. The Bank of Canada had projected inflation to ease gradually, returning to 2% by early 2027, but markets price only 18 basis points of tightening over six months.
Technical support levels at 1.3970 and 1.3870/1.3850 remain in focus, with resistance at 1.4150/1.4175. The 2-year UST/GCAN spread widened by 6 basis points to 136, reversing earlier tightening.