The US Dollar (USD) traded higher against major currencies on Thursday, notably strengthening against the Canadian Dollar (CAD), which faced selling pressure due to escalating trade tensions between the United States and Canada. USD/CAD traded near 1.3886, with the Loonie being the weakest performer among major currencies this week, particularly against the Australian Dollar [1][2][3]. Last week, Washington imposed 50% tariffs on a range of Canadian goods, effective Saturday, after trade negotiations failed. In response, Canadian Prime Minister Mark Carney announced retaliatory tariffs of up to 50% on USD 20 billion of US imports [1]. Analysts at TD Securities expect these tariffs to shave approximately 0.3 percentage points from Canadian GDP by 2027, with the bulk of the impact felt in late 2026 [1]. Despite these developments, the inflation impact is expected to remain modest [1].
The US Dollar's strength was further supported by robust US economic data. The Personal Consumption Expenditure (PCE) Price Index rose by 3.7% year-on-year, while the core PCE increased by 3.3%, both matching June's readings. The annualized GDP growth for Q2 remained unchanged at 1.5% [2]. These figures prompted strategists at Deutsche Bank to note that the data is "hard to square with a view that Fed policy is restrictive," and led to a repricing of Fed expectations, with 42 basis points of hikes now being priced by next June [2]. Treasury yields were slightly lower, with the 10-year note at 4.645%, the 30-year bond at 5.161%, and the 2-year note at 4.211% [6]. Markets are pricing around a 36% chance of a Fed rate hike in September [6].
Investors are awaiting Federal Reserve Chair Kevin Warsh's speech at the Jackson Hole Symposium on Friday, which is expected to provide clarity on the Fed's policy outlook. The lack of forward guidance has left markets sensitive to any perceived dovish or hawkish signals [2][3][4][5][6]. The anticipation of Warsh's remarks has kept trading choppy, with traders refraining from large USD directional bets [2][5].
Other major currencies showed mixed performance. The Australian Dollar (AUD) held near yearly highs, supported by expectations of a Reserve Bank of Australia (RBA) rate hike in November following hawkish minutes and upside surprises in July CPI, with headline inflation at 3.5% year-on-year [4]. The Euro (EUR) remained flat against the USD, correcting lower but maintaining a near-term bullish trend, supported by positive German consumer sentiment [5]. The New Zealand Dollar (NZD) hovered near weekly lows as sticky US inflation reaffirmed bets for at least one Fed rate hike in 2026, but optimism over a US-Iran deal and RBNZ's hawkish tilt provided some support [3].
Technical analysis for USD/CAD shows the pair trading at 1.3887, with a bearish tone as spot remains capped beneath the 20-day EMA at 1.3908 and the 50.0% Fibonacci retracement at 1.3901. The RSI at 44 stays below the midline, indicating limited upside momentum [1].
CONCLUSION
The US Dollar's strength is underpinned by sticky inflation, robust economic data, and heightened Fed rate hike expectations, while the Canadian Dollar is pressured by a trade war and anticipated GDP drag. Markets remain highly sensitive ahead of Fed Chair Warsh's Jackson Hole speech, with traders awaiting policy signals that could drive further volatility. The overall sentiment is cautiously positive for the USD, with significant market impact expected from upcoming Fed guidance.