The USD/CAD currency pair remained firmly near the 1.3850, or 73.5 US cents, during the North American trading session on Tuesday. This muted trading indicates a time of caution as new investors try to recover from recent losses. The pair touched a six month low just below 1.3800 recently. It’s caught in an uncertain sideways range as traders weigh their choices after mixed messages from the economy and conflicting news from the war in Ukraine.
Over the last two weeks, the USD/CAD continued to be under pressure, forcing traders to close their positions and return to the drawing board. Further, against this backdrop, the currency pair of 2.8 is settling down at this level. In Canada, it’s the almost USD 1.0 tn investors await retail sales figures for February on Friday. The next retail sales report is poised to provide critical clues to consumer spending trends. This data has the potential to influence the path of the Canadian Dollar (CAD) vs US dollar.
The outlook for the Bank of Canada’s monetary policy plays a key role in shaping the USD/CAD pair’s dynamics. Moreover, it conditions the way different currencies compete in the international arena. While that may sound hawkish, BoC has been “neutral.” That’s why they’ll be looking for assurance from any rate increase that positive improvements in the economy warrant the change. This overly cautious affects the CAD greatly. Until then, it continues to trade strongly against most of its peers.
Geopolitical considerations only worsen the geopolitical landscape for the USD/CAD pair. Worsening trade tensions between the US and China are exacerbating this climate of uncertainty. This growing uncertainty is weighing on global economic sentiment. Green investors are anxious to see how these tensions continue to affect trade flows and global economic growth. Such awareness directly affects currency valuations.
Cue the ex—President Donald Trump taking shots at Jerome Powell, the Chairman of the Federal Reserve. Such comments have increased the alarm about the direction of U.S. monetary policy. Trump’s comments suggest a growing concern about the pace of interest rate adjustments and the potential repercussions for economic growth. In their place, speculation is blossoming about possible rate cuts. Market participants are undoubtedly taking a keen interest in how these changes will affect the USD/CAD cross.
Analysts are increasingly worried about indications of a slowdown in the U.S. economy. Otherwise, they fear that all of their successful efforts at lowering borrowing rates will quickly make matters worse. As such, this expectation of a slowing down could cause mindsets to change with investors and may have the ability to affect the outlook for the U.S. Dollar (USD). The USD/CAD pair is a natural bellwether to these economic underpinnings and is particularly vulnerable to swings in sentiment.
As the Japanese Yen weakens against the Canadian Dollar, CAD is gaining strength against a lot of currencies. The trend indicates that Canada’s economic fundamentals are faring much better than the economic fundamentals of its southern neighbor. This measure of relative strength may inform correlations that traders can utilize to facilitate more effective, higher probability, USD/CAD-specific trade strategies.
Moving forward, how the Bank of Canada decides on interest rates will continue to be an important chart factor for forex traders. Any expectations of future rate increases or decreases will most certainly affect CAD’s standing compared to the USD. Of Canada’s economic data releases, none are more important than the Employment Situation release to determine the health of the Canadian economy. These findings have major implications for the value of the dollar as well.