On Friday, the USD/CAD currency pair exploded higher. This positive trend was largely propelled by tariffs recently threatened by U.S. President Donald Trump. The duo drew some concentrated offers and surged to a two-week peak. This dramatic increase is a reflection of the growing concern around pro-corporate trade negotiations occurring between the United States and Canada. The capital markets have been eagerly observing how in real time the market is responding to these changes. Second, they’re all watching intently to see the effect on the CAD and where USD/CAD is headed overall.
Even more damaging, on Friday, Trump further inflamed trade tensions when he announced a 35% tariff on imports from Canada. This action has strengthened the dollar’s relative strength, providing a boost to the USD/CAD currency pair. At the time of writing, the pair is trading above the 200-period Simple Moving Average (SMA) on the four-hour chart. This technical indicator further adds to the bullish case by indicating a bullish sentiment in the short term. In spite of this positive shift, USD/CAD has had a hard time holding acceptance over this key psychological 1.3700 level.
Market commentators are pointing out this is easy downside falling below the 1.3700 level. This action may open the monthly low just above the 1.3555 area for USD/CAD. The higher daily chart oscillators still have developing bullish momentum. That indicates the direction of least resistance is toward more gains. In such a scenario, the USD/CAD pair might hit the 1.3765-1.3770 zone with high momentum. Once through that point, the Kiwi could then target recapturing the key 1.3800 handle, as seen last in late May.
As traders continue to parse these technical signals, they are on guard waiting for Friday’s Canadian jobs numbers to drop. The absence of follow-through purchasing casts doubt as to the durability of gains for USD/CAD bulls. The underlying economic fundamentals point towards rates being on a downward trajectory, increasing the bet-hedging potential. A broader, more systemic firming of the U.S. dollar is picking up steam. This increase is supported by lower expectations for a near-term Fed rate cut, providing a tailwind for the USD/CAD pair.
The real trade negotiations between Canada and the U.S. are happening over NAFTA. They hope to get to a resolution by July 21, and this is having a HUGE effect on the Canadian dollar. The lack of clarity around these negotiations introduces yet another complication to the market forces driving USD/CAD. According to some analysts, a solid break above the 1.3730 level with high conviction buying would open the door to additional upside. Creating a new daily swing high would further confirm this bullish movement in price.
Concerns persist regarding a potential downturn. Analysts note that further selling below June’s monthly swing low around the 1.3540 level would likely light a fire under bearish traders. Should this movement persist, USD/CAD could be poised for a swift move downwards towards the important 1.3500 level.