The Canadian Dollar had strengthened sharply against the US Dollar in the month of June, going from over 1.36 to about 1.31 (USD/CAD). However, so far in July, the Canadian dollar has given up about half of those gains.

That trend continued yesterday, with the Canadian dollar sinking to a 3-week low against the US Dollar after touching 1.3369. The USD/CAD pairing was reacting to surprising economic news on both sides of the border yesterday and today.

Canadian trade numbers announced yesterday were far below market expectations. While analysts had forecast a trade surplus of $1.15 billion, the number was a shocking deficit of $3.44 billion. Meanwhile, in the US, ADP Data (private payrolls) surprised on the upside, and today’s Jobs Report shows strong gains, albeit at a slower pace than earlier in the year. Companies adding workers and raising wages keep upward pressure on inflation.

With both labour and inflation data remaining strong in the US, talk of the Fed having to raise US rates to 6% has been gaining more traction, increasing the chances of an economic slowdown or even a recession. This, in turn, dampens demand for Canadian commodities.

The Canadian dollar is currently trading at 1.3293 against the US dollar.