As the second half of 2025 kicks off, July delivered a series of critical developments in Canada’s foreign exchange (FX) market. From stabilizing interest rates to evolving trade conditions and shifting commodity prices, the Canadian dollar (CAD) faced complex pressures and modest rebounds.

Bank of Canada Holds Rates Steady

After a series of cuts earlier in the year, the Bank of Canada (BoC) opted to hold its benchmark interest rate steady at 3.25% during its July 17 meeting. The BoC cited tentative signs of economic stabilization and a wait-and-see approach toward inflation trends, which have hovered just above the 2% target.

“We are encouraged by early signs that past rate reductions are supporting growth,” said BoC Governor Tiff Macklem. “But global uncertainties remain high.”

CAD Performance in July

The Canadian dollar showed relative strength throughout July, buoyed by stable energy prices and slightly improved investor sentiment:

• Against the USD:The CAD traded in a narrow band, averaging 1.34 USD/CAD, reflecting cautious optimism in markets.
• Global View: While the CAD held its ground against the U.S. dollar, it slightly weakened against the euro and yen due to more aggressive policy moves in those regions.

Key Economic Drivers

• Energy Prices: Oil prices remained above $80 per barrel for most of July, supporting the resource-heavy Canadian economy.
• Housing and Labor: Canada’s housing market showed signs of bottoming out, while employment data remained mixed, with the jobless rate steady at 6.7%.

“In currency markets, stability isn’t the absence of movement—it’s the confidence to navigate change.”

Trade & Geopolitical Developments

• U.S. & China Trade Friction: Rising tensions between Washington and Beijing injected volatility into global FX markets, although Canada remained somewhat shielded.
• NAFTA 2.0 Stress: Minor disputes over agricultural exports flared, with U.S. trade representatives requesting new reviews on Canadian dairy access.

Investor Sentiment & Market Outlook

While markets have adjusted to lower rate environments, July saw modest increases in FX hedging activity, reflecting investor caution ahead of the BoC’s September outlook. Analysts remain divided on the CAD’s trajectory, with bulls citing commodity strength and bears warning of continued labor market slack.

Final Thoughts

July 2025 was a month of cautious optimism for Canada’s FX market. With interest rates stabilized and commodity prices providing a floor for CAD performance, attention now shifts to inflation control and fall fiscal policy moves. As always, vigilance remains key as domestic and international forces continue to evolve.