Canadian Dollar Dips as Retail Sales Falter and US Economic Signals Send Mixed Messages

The Canadian Dollar (CAD) weakened against the US Dollar (USD) on Thursday, July 24, 2025, ending a four-day decline as the USD/CAD pair steadied above the 1.3600 mark. This shift was driven by disappointing Canadian retail figures and a mixed bag of US economic data, which bolstered the US Dollar modestly. With global markets buoyed by optimism over a potential US-EU trade deal and stabilizing Treasury yields, the Greenback found its footing, pushing the pair to around 1.3620, a 0.15% daily gain. The interplay of domestic economic challenges in Canada and contrasting US indicators highlights the delicate balance shaping currency movements.

Canada’s retail sector painted a grim picture, with May’s Retail Sales dropping 1.1% month-over-month, aligning with forecasts but reversing April’s modest 0.3% gain. Core Retail Sales, excluding autos, fell 0.2%, slightly better than the anticipated 0.3% decline, yet signaling weakening consumer demand. This downturn underscores the pressure on Canadian households, grappling with high inflation and borrowing costs, which has dampened spending and weighed on the Loonie.

Across the border, US economic data offered a split narrative. The S&P Global flash Composite PMI for July climbed to 54.6 from June’s 52.9, marking the strongest business activity in seven months. The Services PMI outperformed expectations at 55.2, surpassing forecasts of 53.0 and reflecting robust demand. However, the Manufacturing PMI slid to 49.5, down from 52.0 and below the expected 52.5, dipping into contraction territory. This divergence highlights uneven economic momentum, with services thriving while manufacturing struggles.

US labor market data provided some relief. Initial Jobless Claims for the week ending July 19 dropped to 217,000, down from 221,000 and better than the forecasted 227,000, hitting the lowest level since mid-April. Continuing Claims, however, edged up to 1.955 million, suggesting a slower re-employment pace. Despite these signs of resilience, the US Dollar Index (DXY) hovered around 97.17, tempered by lingering concerns over tariff uncertainties and questions about the Federal Reserve’s independence.

The USD/CAD pair’s uptick reflects these dynamics, with the US Dollar drawing support from improving global risk sentiment and Canada’s economic soft spots. As investors weigh the implications of a potential US-EU trade deal against domestic challenges, the Canadian Dollar faces headwinds. The path forward hinges on whether Canada can stabilize its consumer demand and how the US navigates its mixed economic signals, with both currencies at a crossroads.