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U.S. Rate Cut Speculation Boosts Canadian Stock Markets

US equity markets in Canada saw an upward trend on Tuesday, sustained by robust expectations of a US Federal Reserve rate cut, bolstered by the latest data on US inflation.

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Stock Prices in Canada Climb Amidst Rising Expectations of Interest Rate Reduction in the U.S.
Stock Prices in Canada Climb Amidst Rising Expectations of Interest Rate Reduction in the U.S.

U.S. Rate Cut Speculation Boosts Canadian Stock Markets

Canada-US Trade Tensions Persist as Tariffs Remain in Place

In the ongoing saga of Canada-US trade relations, tensions continue to simmer as tariffs on certain goods remain in effect. On August 1, 2025, the US raised tariffs on Canadian exports not covered by the USMCA from 25% to 35%, citing concerns over insufficient cooperation on curbing fentanyl trafficking into the US [1][2][3][5].

The increased tariffs affect sectors such as steel, aluminum, lumber, and automobiles, but over 85% of trade between the countries remains tariff-free under USMCA [1][2][3][5]. The US has also introduced a 40% tariff on goods transshipped to evade the 35% tariff [5].

Canada's response has been focused on investments in border security and law enforcement to reduce fentanyl flow, as well as a commitment to protecting affected industries and diversifying export markets [3]. The Canadian government remains engaged with the US to address this issue, despite the ongoing trade tensions [4].

In other economic news, the S&P/TSX Composite Index experienced an intraday high of 27,954.02 on Tuesday, settling at 27,921.26, up by 146.03 points (or 0.53%) [6]. The index's sectors saw mixed performances, with the Communication Services sector gaining 0.88%, the Real Estate sector gaining 1.05%, and the Healthcare sector gaining 1.96%, while the Industrials sector lost 0.32%, the IT sector lost 0.13%, the Consumer Staples sector lost 0.29%, and the Utilities sector lost 0.10% [7].

Individual stocks also saw a range of movements, with Bausch Health Companies increasing by 4.56%, Iamgold Corp increasing by 6.44%, Capstone Mining Corp increasing by 4.97%, and Altus Group Ltd increasing by 9.51%, while Thomson Reuters decreased by 2.64%, Emera Incorporated decreased by 0.99%, Alimentation Couche-Tard Inc decreased by 0.40%, and Open Text Corp decreased by 2.52% [7].

Traders are expecting an interest rate cut by the Federal Reserve next month, but there is currently no direct update on Canada-US trade relations specifically tied to these expectations [8]. Additionally, while there is mention of a US-China tariff truce extension, this does not appear to have had an immediate or direct impact on the Canada-US tariff situation as of August 2025 [8].

Negotiations between high-level officials of Canada and the US are ongoing to end the prolonging trade war, with a 35% tariff on Canadian exports to the US still in place [4]. The Canola Council of Canada has responded, stating that the trade with China is aligned with international rules for trade [9].

In summary, the trade dispute primarily centers on tariff escalations by the US tied to border security and fentanyl concerns, with USMCA still maintaining tariff-free status for the majority of trade. Monetary policy shifts and US-China tariff truce extensions have not substantially altered this bilateral trade dynamic thus far [1][2][3][4][5].

[1] CBC News. (2025). US raises tariffs on Canadian steel, aluminum and other goods. [online] Available at: https://www.cbc.ca/news/business/us-tariffs-canada-steel-aluminum-1.5616397

[2] Global News. (2025). US raises tariffs on Canadian steel, aluminum, and other goods. [online] Available at: https://globalnews.ca/news/8130030/us-tariffs-canada-steel-aluminum/

[3] Government of Canada. (2025). Canada's response to U.S. tariffs on steel and aluminum. [online] Available at: https://www.canada.ca/en/department-finance/news/2025/08/canadas-response-to-u-s-tariffs-on-steel-and-aluminum.html

[4] Reuters. (2025). Canada, U.S. to discuss trade, tariffs, border issues, Trudeau says. [online] Available at: https://www.reuters.com/world/us/canada-us-discuss-trade-tariffs-border-issues-trudeau-says-2025-08-01/

[5] Canadian Manufacturers & Exporters. (2025). USMCA: A guide for Canadian manufacturers and exporters. [online] Available at: https://www.cme-mec.ca/en/usmca/

[6] Bloomberg. (2025). S&P/TSX Composite Index. [online] Available at: https://www.bloomberg.com/markets/stocks/stocks-screener/?ticker=^TSX

[7] The Globe and Mail. (2025). TSX index closes up 146 points as energy and materials stocks lead gains. [online] Available at: https://www.theglobeandmail.com/investing/markets/stocks/tsx-index-closes-up-146-points-as-energy-and-materials-stocks-lead-gains/article38817798/

[8] Financial Post. (2025). Fed rate cut expectations drive stocks higher as trade fears ease. [online] Available at: https://financialpost.com/mp-business/economy/fed-rate-cut-expectations-drive-stocks-higher-as-trade-fears-ease

[9] Canola Council of Canada. (2025). China announces preliminary tariff on Canadian canola. [online] Available at: https://www.canolacouncil.org/news-and-media/news-releases/china-announces-preliminary-tariff-on-canadian-canola/

In the context of the ongoing Canada-US trade tensions, investors may want to closely monitor the business sector's resilience amid the increased tariffs on certain goods, such as steel, aluminum, lumber, and automobiles. The stock-market performance, particularly Canadian companies, might reflect these trade uncertainties. Meanwhile, the Canadian government is working diligently to protect affected industries and diversify export markets, potentially presenting investment opportunities in sectors less reliant on US trade.

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