The Canadian foreign exchange (FX) market began the third quarter of 2025 on a cautious but stable note. With monetary policy clarity improving and global market sentiment gradually recovering, the Canadian dollar (CAD) is showing signs of resilience. Here’s a summary of the developments influencing the CAD as of early July.

Bank of Canada Holds Rates Amid Inflation Watch

The Bank of Canada (BoC) announced on July 2 that it would maintain its benchmark interest rate at 3.25%. The decision came amid stable inflation figures—hovering around the 2.1% mark—and a broadly supportive economic backdrop.

Governor Tiff Macklem noted that the central bank is encouraged by consistent inflation moderation but will continue to monitor wage growth and consumer demand closely. A data-dependent stance remains the core of BoC’s forward guidance.

CAD Trading Dynamics

The CAD opened July trading around 1.3370 USD, experiencing limited volatility:

• Oil Support: Oil prices have remained strong, trading near $84 per barrel, reinforcing support for the resource-driven Canadian dollar.
• U.S. Dollar Trends: The USD softened slightly following dovish remarks from the Federal Reserve, helping to lift the CAD.
• Risk Sentiment: Global markets have shown modest improvement, reducing safe-haven demand and benefiting commodity-linked currencies like the CAD.

Economic Indicators and Market Confidence

Recent economic data signals cautious optimism:

• Jobs Market: June labor market data showed a net gain of 28,000 jobs, with continued strength in healthcare and professional services.
• Retail Spending: Consumer spending ticked up slightly in May, suggesting confidence despite high household debt levels.
• Manufacturing Output: After a weak Q1, June saw a 1.2% rebound in manufacturing, driven by exports and machinery demand.
  

“Stability in currency markets is earned through balanced policy, economic resilience, and global perspective.”

External Influences

• U.S. Fed Outlook: Markets expect the Fed to hold rates steady for now, aligning with Canada’s cautious monetary stance.
• China Demand Recovery: Improved industrial activity in China has boosted demand for Canadian resources, positively impacting the CAD.
• Geopolitical Landscape: Persistent tensions in Eastern Europe and the South China Sea continue to create uncertainty, though impact on the CAD has been muted.
  

Outlook for July

With the Bank of Canada staying the course and economic fundamentals appearing steady, the CAD is likely to remain in a stable range barring unexpected global disruptions. Traders will watch upcoming inflation data and U.S. Fed statements closely for clues on future monetary moves.

Stay tuned for mid-month updates and further analysis as Canada’s FX market navigates the evolving global landscape.