- USD/CAD pressured as US data softens and the Canadian economy outperforms.
- Tariff concerns a fading force in driving USD/CAD volatility.
- Canadian inflation looms, but GST distortions may limit its impact on the trend.
Summary
USD/CAD is trading heavily ahead of Tuesday’s Canadian inflation report, weighed down by softer US economic data and fading sticker shock from US trade policy headlines. With Canadian data impressing at rates not seen since mid-2024 and February's steep reversal from 22-year highs increasingly resembling a cyclical top, the key question now is whether this marks the start of a more significant unwind of earlier USD/CAD gains.
US Economic Exceptionalism Wavering
US economic exceptionalism—you’ve no doubt heard the phrase often in recent years. Of all the world’s advanced economies, the US has consistently outperformed while others have struggled. Even with what the Fed considered highly restrictive monetary policy and a strong dollar, US growth has not only held up but remained at levels that, historically, could reignite inflationary pressures.
But is the tide turning on that narrative?
It’s hard to say definitively—and it’s certainly not the Trump Administration’s plan—but some recent signals suggest the story may be shifting.
Citi’s US economic surprise index—shown in the chart below—questions the economic exceptionalism tag, having slipped into negative territory after last Friday’s significant US retail sales miss for January. While the index only measures data performance relative to forecasts—not actual activity, which remains robust—it still plays a key role in shaping sentiment around the US economy, interest rates, and the dollar.
