The USD/CAD currency pair is experiencing downward traction as investors brace for key economic announcements. The pair finds fresh support from renewed selling pressure on the US Dollar, while market participants look past Middle East tensions towards the anticipated US-Russia talks on a Ukraine peace deal. Currently trading in the mid-1.4300 region, the pair faces immediate support at the 1.4300 mark, with a potential bearish target at 1.4239, the March monthly low.
Canadian policymakers remain vigilant against risks posed by ongoing trade tensions, which hold the potential to impact the local economy. Inflation expectations have stabilized since August 2024, though officials anticipate volatility through March. The Bank of Canada's Monetary Policy report, released in January, indicates that inflation is expected to hover near 2% over the projection horizon.
USD/CAD Movement and Market Reactions
Ahead of significant economic announcements, the USD/CAD pair has gained downward traction. Analysts point to the broad weakness of the US Dollar as a key factor contributing to this movement. Valeria Bednarik, Chief Analyst at FXStreet, noted:
"Ahead of the announcement, the USD/CAD gains downward traction, according to technical readings in the daily chart. The case for another leg lower is high amid the broad US Dollar’s (USD) weakness, as at the end of the day, the American economy will be the most affected by the trade war.”
The immediate support level for the pair is set at 1.4300, with further declines potentially targeting the March monthly low of 1.4239. However, should the pair surpass the 1.4380 mark, it could gain upward traction with a bullish target at 1.4542—a level reached earlier this month.
Inflation and Economic Outlook in Canada
Canadian policymakers are acutely aware of the risks associated with a trade war, particularly in terms of its impact on domestic demand and inflation. With inflation expectations largely normalized since August 2024, officials are nonetheless prepared for potential volatility through March.
Governor Tiff Macklem emphasized the central bank's response strategy in light of these challenges:
"However, since the bank felt that domestic demand was going to be impacted and inflation continued to be at around 2%, 'the most appropriate course of action was to cut the policy rate,’”
The Bank of Canada's recent Monetary Policy report underscores their expectation for inflation to remain near 2% over the projection horizon, providing a stable economic outlook despite external uncertainties.
Trade Tensions and Geopolitical Factors
Amidst ongoing geopolitical tensions, Canadian policymakers have identified US trade policy as a significant source of uncertainty. As investors navigate these complexities, attention has shifted towards potential resolutions arising from forthcoming US-Russia discussions on a Ukraine peace deal.
Policymakers have expressed concerns regarding trade policy's implications:
"US trade policy has emerged as a major source of uncertainty.”
These uncertainties contribute to fluctuations in currency pairs like USD/CAD, which are sensitive to both international trade dynamics and domestic economic indicators.