CAD slides but quickly steadies on 35% tariff threat - Scotiabank

So much for the July 21st deadline. The Canadian Dollar (CAD) slumped on the 35% tariff headlines when they hit overnight but quickly steadied as it became clear that USMCA exemptions (for around 40% of Canadian exports to the US) remain intact, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Tariff threat raises the stakes

"The CAD (and other markets) may also take some solace in the fact that the legal appeal against some of the president's tariff powers is working its way through the courts (with a likely decision before the end of the month). PM Carney responded that Canada would continue to engage with the US as it worked towards the revised August 1 deadline. While the CAD has steadied, the tariff threat raises the stakes ahead of this morning's unemployment data."

"The CAD has been generally pulled around by the broader USD/market tone over a quiet week so far but will finally get a domestically-driven impulse with the labour market update. The street does not expect the impulse to be positive, however, with the consensus call a 10k drop in jobs and a further uptick in the unemployment rate to 7.1% (back to August 2021 levels). Scotia is anticipating a 10K rise and steady unemployment (7.0%)."

"Better than consensus results should allow the CAD to extend its rebound from the overnight low a little further. The jump in the USD overnight through the low 1.37s adds a little technical backing to the broader tone in funds in the short run but the charts also reflect consistent USD selling pressure above 1.37 this week. Support is likely to be firm on dips to the 1.3650 area for now. Resistance is 1.3735/50."