The USD/CAD currency pair has seen positive movement return on Friday, supported by a fresh upswing of demand for the U.S. dollar. In addition to fears about a potential Canadian federal election, as political risk uncertainties increase, we’re seeing tremendous pressure on the Canadian dollar (CAD). In USD/CAD, the pair is trading close to the top of its weekly range, just below the 1.3900 figure. It hovers right above the three year low it hit earlier this week.
During the first half of the European session on Friday, the USD/CAD currency pair was still holding onto its upbeat tone. Their pairing-up embodies the much bigger recent theme of USD buying that’s been taking root in the global marketplace over the past several trading sessions. Having risen as high as 1.3860, spot prices have since retreated but continue to find themselves above that key psychological mark of 1.3900. That’s a sign that investors are becoming the cautious heroes.
As the loonie’s weakness becomes a powerful driver, the case for a long USD/CAD is strengthening. Tensions are escalating amid intensifying conflicts between the U.S. and Canada. As traders remain concerned about how this could affect trading patterns, the drop is exacerbated. Furthermore, domestic political risk stemming from the uncertainty leading up to the Canadian federal elections set for this coming Monday only adds to the CAD’s woes.
On Thursday, comments from U.S. President Donald Trump appeared to complicate the tenuous situation. His comments have had an outsized impact on market sentiment. His comments raised hopes for a rapid agreement and easing of the years-long trade war. More broadly, this optimism weighed on the risk tone, which was a net positive for USD/CAD.
Most recently, Fed Governor Christopher Waller signaled that he would be okay with an interest rate cut. This position holds unless and until tariffs begin to affect labor markets, further muddying the waters. This position is a clear reflection of growing concerns over the economic consequences of trade wars. China’s move to raise its heavy 125% tariff on certain U.S. exports further compounds these fears.
Outside of these geopolitical concerns, low crude oil prices keep weighing on the loonie. Consumer confidence would take a hit, given that Canada is a major oil exporter, and falling oil prices would usually increase downward pressure on Canada’s currency. The basic macro foundation therefore calls for some caution from USD/CAD bulls, not least with the federal election now just weeks away.
The USD/CAD pair now looks poised to close higher on the week for the first time in eight weeks, shaking off plenty of headwinds. That indicates that traders are preparing for significant market movements after the direction of a divided congress comes to light through the election results.