Economic Outlook and Summary
August trading was choppy, and thin as summer holidays drained liquidity. The US dollar index (DXY) slid from 100.25 on August 1 to 97.78 by month end, pressured by weak volumes, payroll revisions, and Trump’s tariffs. Fed rate-cut fever, coupled with blockbuster earnings, pushed the S&P 500 to fresh records.
The US/China trade spat cooled slightly after Trump delayed new tariffs until November 10. Still, the much-hyped Trump/Putin summit in Alaska fizzled, producing zero progress on Ukraine.
September kicks off with Wall Street flirting with record highs while geopolitical tension heats up. Trump’s tariff war with India is driving New Delhi closer to Beijing and Moscow. Meanwhile, Iran’s nuclear program, French political turmoil, and a loaded calendar of data and central bank meetings keep risk elevated.
The USD and Federal Reserve
The Fed and the dollar both took hits in August. Trump’s effort to bend the central bank to his will unnerved markets. His nomination of loyalist Stephen Miren to replace Adriana Kugler, followed by the sacking of Governor Lisa Cook on mortgage fraud allegations, underscored the assault on Fed independence. Cook disputes the dismissal, and the courts will now decide.
All eyes are on the September 5 payrolls release. Forecasts call for a 78,000 gain in August, which lines up with a 25-bp cut after Powell’s Jackson Hole pivot. A big downside revision, however, could force the Fed into a 50-bp move on September 17. Either way, a faster pace of easing and doubts about Fed independence keep the dollar on the defensive.
The Canadian Dollar and Bank of Canada
The Bank of Canada (BoC) is sharpening its rate-cutting blade. A confluence of recent economic data has built a strong case to support the BoC easing monetary policy by 25 bps at its September 17 meeting. Canada’s economy shrank by 1.6% y/y in Q2, and a steep decline in exports due to Trump tariffs was largely to blame. Headline inflation was 1.7% in July compared to the BoC target of 2.0%.
Usually, falling Canadian interest rates would be detrimental for the Canadian dollar, but not so this time. The US dollar is also under pressure due to speculation of faster and deeper Fed rate cuts, while Trump’s attack on the Federal Reserve suggests Canadian dollar downside may be limited or at least remain in its well-defined USDCAD 1.3550–1.3950 range.
Oil Prices
WTI oil dropped from 69.62 at the beginning of August but found a bottom at 61.24 in the middle of the month. Prices have inched back to 64.61, but the gains are just a correction while prices are below 65.60. In addition, increased OPEC and non-OPEC production combined with rising inventories and weak economic growth in Europe and China point to a supply-demand mismatch.
Sources: Bloomberg, Investing.com, Reuters
Bank 2025-USD/CAD Q3 2025-USD/CAD Q4
Scotiabank* 1.3600 1.3400
BMO 1.3600 1.3500
CIBC 1.3600 1.3500
TD Bank* 1.3800 1.3700
National Bank 1.3900 1.3700
*Forecast is based on last month. Does not include post Tariff moves. Forecast Table is for mid-market rates, and subject to change anytime.
