As the official currency of the United States, the US Dollar (USD) has fluctuated tremendously with the USD/CAD exchange rate. All these changes have already happened in these last few trading sessions. At the start of the day, the USD/CAD exchange rate reached a high of 1.3860. It pulled back to just above 1.3800 in early European trading hours on Wednesday. With this movement, we are seeing some mixed signals in the market. Substantial gains followed US President Trump’s cooling rhetoric on the trade war with China. The USD began to give up its strength, raising the eyebrows of market analysts. They started to think about moves down in the currency pair.
The USD is the official currency of the United States of America. It serves as the ‘de facto’ currency in scores of other countries, operating in tandem with local currencies. Its mission goes well beyond our borders. First, some context: this currency represents more than 88 percent of all global foreign exchange turnover, which averages around $6.6 trillion in daily transactions based on 2022 figures. This hegemony ensured its position as the world’s reserve currency following World War II. Yet, it did replace the British Pound during this pivotal time.
Current Trends in USD
Recent technical and fundamental market indicators continue to point to a US Dollar bearish trend. The USD’s 14 week Relative Strength Index (RSI) has fallen under 40.00, the level not seen in almost four years. This slide heralds a loss of upward currency momentum. While the 20-week Exponential Moving Average (EMA) hasn’t turned bearish just yet, it has begun to decline, recently breaking below the 1.4140 level. This increase deepens the bearish sentiment.
Market analysts frequently keep track of changes in the USD compared to other key currencies — the Euro, the Yen, and so on. The USD now trades mixed, most noticeably with the same currencies’ percentage moves reversed, including a small -0.19% vs USD, its own subtle USD weakening. It shows slight decreases against other currencies: 0.25%, 0.23%, and 0.05%, while experiencing larger declines of -0.66% and -0.31%, along with a modest gain of 0.54%. These numbers represent a whirlwind few weeks for the dollar as it continues to adjust to inflationary and supply chain pressures.
If inflation rates were to fall below 2%, the Federal Reserve would likely take action to lower interest rates. A catastrophic jump in unemployment would likely force the opposite decision. These would collectively stack the deck against the value of the USD, undermining its competitive position in global forex markets.
Analysis of USD/CAD Dynamics
In particular, the recent behavior of the USD/CAD currency pair underscores its high sensitivity to both domestic and international economic factors. Traders are getting worried with every day passing without a bullish reversal. This concern comes in the wake of retreating from February’s 1.3860 high down to the 1.3800 area. Technical analysts warn that should the USD/CAD pair fall below the upward-sloping trendline in the vicinity of 1.3800, a steep drop may develop.
In this backdrop, support levels are important for traders focused on this emerging currency pair. If it does break below the psychological barrier of 1.3800, analysts expect a move down to important support levels at 1.3600 and 1.3500. They will be watching the September 24 low of 1.3430 with intense focus. These kinds of developments would reflect a longer-term bearish trend for the USD versus the CAD.
Only if the price climbs back above the critical level of 1.4000 can it be expected to indicate a bullish reversal. Such an action would likely push the USD/CAD pair considerably higher, potentially up to the April 9 short-term low of 1.4075. Traders should continue to keep a close eye on these levels as they give a great overall picture of where the markets might head next.
Implications of Trade Relations on Currency Value
US President Trump’s recent comments expressing confidence in de-escalating trade tensions with China initially bolstered the USD, contributing to its gains earlier in the week. Better trade relations increase investor mood. This surge in optimism will create an increased global demand for the dollar.
Market mood turned as the dollar reversed its early strength. As soon as some geopolitical developments turned currency valuations upside down, it was evident that external factors, like geopolitical developments, play a crucial role in heavily influencing currency values. The interplay between trade relations and currency strength cannot be understated, as uncertainty often leads to volatility in foreign exchange markets.
Investors are continuing to play it safe. Economists as well as people in the business world are just trying to test the waters.