USD/CAD rallies further, approaches 1.3900 on higher levies to Canada

• The Canadian Dollar extends losses against the USD after US President Trump increased tariffs on Canadian products.
• The US Dollar remains buoyed on the back of solid US data and dwindling hopes of Fed cuts.
• The focus today is on the US NFP, which is expected to show a moderate decline in job creation in July.

The US Dollar keeps marching higher, as the Canadian Dollar struggles after Trump decided to increase tariffs to Canada to 35% from the previous 25%, escalating the trading tension with one of its main trading partners.

The US President justified his decision on Canada's alleged reluctance to cooperate on curbing the traffic of fentanyl and other drugs across the US border. The impact on the Canadian Dollar, however, has been moderate as most Canadian exports are likely to avoid these levies thanks to the USMCA agreement.

Canada's GDP contracts but shows positive signs

In the macroeconomic front, Canada's Gross Domestic Product data showed that the economy contracted for the second consecutive month in May, in line with the market expectations. Still, manufacturing activity improved significantly, which suggests that the economy might return to growth in June.

In the US, PCE Price Index figures confirmed that price pressures are increasing, which adds reasons to the Federal Reserve to keep interest rates on hold before the real impact of tariffs is clarified. The data provided additional support to the USDollar.

The focus today is on July's Nonfarm Payrolls report. The market consensus anticipates a slightly lower increase in jobs, 110,000 against the 147,000 seen in June, with the Unemployment Rate increasing to 4.2% from 4.1%. The final reading is likely to determine the direction for US Dollar crosses.