Written by the Market Insights Team
Fundamentals in Canada remain weak
Kevin Ford – FX & Macro Strategist
USD/CAD extended last week’s rebound after briefly pausing at 1.394, fueled by renewed trade optimism as the U.S. and China agreed to slash tariffs by 115% for the next 90 days. The deal lowers U.S. tariffs on Chinese imports to 30% and China’s tariffs on U.S. goods to 10%, helping to stabilize market sentiment as negotiations continue. In addition, some export restrictions have been temporarily lifted, adding to the optimism surrounding trade discussions.
For the USD/CAD some resistance is expected as it approaches the 1.40 level, where the 200-day SMA sits. The US Dollar has gained sharply against Euro and Pound amid broad strength. Equity markets wasted no time reacting to the news. Dow Jones futures jumped 2.1%, S&P 500 futures climbed 2.8%, and Nasdaq-100 futures surged 3.8% early Monday, reflecting renewed investor confidence in easing trade tensions.
On the macro front, last week’s jobs report revealed Canada’s unemployment rate edged up to 6.9% in April, marking its highest level since November. Job growth was minimal, with only 7.4K positions added, and the manufacturing sector took the biggest hit, shedding 31K jobs, the sharpest decline since January 2009, outside of the COVID-19 crisis. This 1.6% drop marks the sector’s first major setback since November 2024, as ongoing uncertainty around U.S. tariffs continues to weigh on business confidence.
Ontario was hit the hardest, losing 33K jobs (-3.9%), with Windsor feeling the most pressure. Given that automotive industries account for 43.1% of the city’s manufacturing employment, the region saw its unemployment rate jump 1.4 percentage points to 10.7%. Meanwhile, wholesale and retail trade also showed signs of weakness, cutting 27K jobs (-0.9%).
Last week’s Bank of Canada financial stability report flagged job losses as a growing risk to the economy, especially with household debt remaining high. A weaker labor market could add financial strain for borrowers, making policymakers more cautious. As a result, the chances of another rate cut at the Bank’s next meeting are looking higher.
Dollar extends gain as busy week beckons
George Vessey – Lead FX & Macro Strategist
The US dollar index is reaching a 4-week highs this morning, extending its 3-week rally as US-China reached a deal. US stock futures are outperforming, leading gains over European and Asian shares, while traditional safe-haven currencies, the yen and Swiss franc, slipped alongside Treasuries, reflecting fading demand for defensive assets. Meanwhile, China-linked currencies surged, with Australian and New Zealand dollars climbing alongside the yuan, while the euro retreated, mirroring shifts in global sentiment.
Although the whole situation remains fluid and uncertainty is still high, much of the fallout from Trump’s “Liberation Day” tariff announcements has been erased as the President softens his protectionist stance, fueling a relief rally and suppressing volatility. However, investors remain cautious, reluctant to make big bets on optimistic rhetoric without concrete steps to reduce levies, particularly between the US and China. While the tone has shifted, uncertainty persists, keeping traders on edge until clear policy moves emerge.
The dollar, which faced selling pressure earlier this year over concerns about trade policy uncertainty, has regained ground as negotiation optimism, solid economic data, and the Fed’s cautious stance on rate cuts underpin demand. As well as keeping a close eye on trade talks, US consumer inflation data on Tuesday, followed by retail sales and producer prices on Thursday, will be under the microscope as investors look for fresh signals on how the trade war has impacted the economy and when the Fed will start cutting rates again.
Euro slides as risk appetite builds
George Vessey – Lead FX & Macro Strategist
The euro continues to face downside pressure, retreating toward a key support region ($1.12) against the US dollar as US equity futures rally. Encouraging signals from US-China trade talks over the weekend have reinforced the pattern of inverse moves between risk assets and the common currency.
Recent market dynamics have positioned the euro as a hedge against US policy uncertainty, benefiting from safe-haven flows when equities decline. However, with sentiment shifting toward optimism and risk appetite strengthening, the euro is likely to remain under pressure. Any further trade progress could accelerate the move, keeping the currency on the defensive.
The Eurozone’s recovery narrative is also being tested. This week’s ZEW survey and GDP data could prove pivotal. Any signs of weakening momentum could further weigh on the euro, particularly if US economic resilience comes back into focus. Investors will watch these releases closely, assessing whether the euro’s recent slide extends further or stabilizes near current levels.
Mexico auto industry on a downward trend
Kevin Ford – FX & Macro Strategist
After a standout 2023, Mexico’s auto industry has been on a downward slide, and the latest U.S. tariffs aren’t doing it any favors. With 70% of Mexico’s automotive production heading to the U.S., any disruption in trade hits hard.
April 2025 was no exception. According to Instituto Nacional de Estadística y Geografía (INEGI), car exports dropped 10.9% year-over-year, reversing the 3.8% uptick seen in March. The tariffs have clearly slowed shipments to the U.S., with some of the biggest names feeling the pressure.
Mazda had the toughest month, with exports plunging 60.9%. Volkswagen also struggled, down 44.4%, while Mercedes-Benz, -43.9%, Stellantis (Chrysler and Fiat), -36.9%, Audi -33.7%, and BMW -32.6% all posted sharp declines. Toyota bucked the trend, jumping 36.4%, while General Motors +8.8%, and Ford +1% also managed to stay in positive territory.
Dollar gains sharply against Euro and Pound amid broad strength
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: May 12-16
All times are in ET
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quothave a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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