USD Rallies as Tariffs Hit CAD, Hawkish Warsh Shifts Fed Expectations

Last week saw significant market movements driven by various economic data releases and central bank statements. The US Dollar (USD) received a boost from strong US Core PCE Price Index and Preliminary GDP readings, which came in higher than expected, with the index showing an annualized rate of 3.7%. This gave the USD a lift.

The Canadian Dollar (CAD), however, was hit by new US tariffs on C$27.6 billion of Canadian goods effective August 22. Canada responded with matching counter-tariffs due to start September 8, putting downward pressure on the CAD.

Chair Kevin Warsh's speech at the Jackson Hole symposium also had a significant impact on markets. He stated that inflation remains above the Fed's fixed 2% PCE objective and emphasized the need for price stability, shifting expectations of the Fed's path going forward towards a more hawkish direction.

The USD/CAD currency pair saw a strong bullish move last week, with a clear bullish 'V' chart pattern indicating strong momentum. This was backed by the Canadian Dollar being weak due to new US tariffs and falling Crude Oil prices, while the US Dollar strengthened due to Fed Chair Warsh's hawkish speech.