Economic Outlook and Summary
July opened with the Iran ceasefire already fraying and ended with it in tatters. The June 14 truce and its 14-point memorandum barely survived three weeks before Iranian attacks on commercial shipping near Oman triggered US retaliation on July 7. Since then, the two sides have traded blows with little sign of de-escalation.
Trump dominated the headlines. His handling of the Iran conflict, erratic, some would say unhinged, combined with tariff announcements seemingly designed to distract from rising fuel prices and sinking approval ratings, sent financial markets bouncing like a yo-yo in an earthquake. The rhetoric was equally volatile. On August 1, Trump declared a deal with Iran was within reach. By August 3, he was accusing Tehran of negotiating in bad faith.
Central banks struggled to compete for attention. BoJ left rates unchanged at 1.0%, but the decision was overshadowed by massive US Treasury and Japanese intervention to weaken the yen. BoE also stood pat, although a three-way split in favour of a hike put September in play. ECB's decision to leave rates unchanged barely registered.
August is normally defined by thin liquidity. Not this year. Section 301 tariffs are beginning to hit supply chains just as Middle East tensions keep markets one headline away from another flight to safety.
The USD and Federal Reserve
The US dollar spent July whipsawing rather than trending. The DXY pushed toward 101.5 as Middle East risk aversion built through the month, then dropped sharply in the final days of July before clawing back toward 100 this week.
The July 28-29 FOMC meeting delivered a hold, but with three dissents pushing for a hike, a split that keeps a September move very much alive depending on what August's inflation prints show. Minutes from that meeting land August 19, the same day the Section 338 tariffs bite, which should make for an interesting news cycle. The meeting was further complicated by Fed Chair Kevin Warsh. He delivered minimal guidance, and left markets scrambling to interpret what is needed to trigger the next rate move.
New York Fed President John Williams suggested the next move could be lower in an interview on August 3. He expects inflation to keep cooling through the back half of the year as the disinflationary forces that predate the tariff and energy shocks reassert themselves. That is a rather different emphasis than the hawkish overtones markets have been pricing off Warsh's silence.
Traders will be looking ahead to the annual Jackson Hole Symposium August 27-29, but judging by the theme, "Financial Innovation: Implications for Payments and Policy," they may not get any new monetary policy insight.
The Canadian Dollar and Bank of Canada
The Bank of Canada held at 2.25% for a sixth consecutive meeting on July 15 and delivered a Monetary Policy Report considerably more upbeat than the one it published in April, pointing to export-led growth and a business investment pickup even as tariffs, trade uncertainty and slower population growth keep weighing on the numbers. Unemployment sat at 6.5% in June, still within the range the Bank has occupied since late 2024.
The next BoC meeting is September 2, leaving the loonie to trade off oil, US yields and tariff headlines rather than anything the Bank itself says. Markets are pricing a heavy majority for another hold, with only a modest probability attached to a hike.
That leaves Section 338 tariffs as the dominant domestic story. A 50% duty on autos, dairy and alcohol, along with a slew of other products, lands on August 19. Whether the CUSMA review produces anything to offset that before year-end remains an open question, since talks between Ottawa and Washington haven't even begun.
Oil Prices
WTI's July round trip, from the high $60s to the low $90s and back into the $80s, underscores just how fickle the geopolitical risk premium has become. The brief calm following June's ceasefire didn't last. Iran's threat to close the Strait of Hormuz, combined with Houthi attacks on Red Sea shipping, leaves markets worrying about two potential energy chokepoints instead of one.
OPEC's spare capacity is thinner than advertised, leaving little room to absorb another supply shock if tensions escalate. At the same time, refinery utilisation in North America remains high, meaning pump prices are likely to stay elevated even if crude continues to retreat. That disconnect matters. Lower oil prices may take weeks to reach consumers, helping keep Canadian energy export revenues supported.
Bank 2026-USD/CAD Q3 2026-USD/CAD Q4
Scotiabank* 1.3900 1.3700
BMO 1.4200 1.4000
CIBC 1.4000 1.3700
TD Bank* 1.3700 1.3500
National Bank 1.4000 1.3700
*Forecast is based on last month. Forecast Table is for mid-market rates, and subject to change anytime.
