The USD/CAD currency pair is experiencing a positive bias for the third consecutive day, though it remains below its highest level since March 2020. Despite this upward momentum, the pair's appreciation is capped by widespread acceptance that the Federal Reserve (Fed) will lower borrowing costs twice this year. Sliding oil prices are also playing a significant role by undermining the Loonie, thereby providing a tailwind for the USD/CAD pair. As of now, the pair is trading near the psychological mark of 1.4500, with traders eyeing the 1.4515 area as a potential multi-year peak.
A modest uptick in the US Dollar (USD) is serving as a key factor driving this upward trend. Analysts suggest that the release of the US Weekly Initial Jobless Claims might further propel the pair. However, the USD/CAD is anticipated to attract sellers near the 1.4465-1.4470 supply zone if it maintains its position above the 1.4400 mark. Additionally, uncertainty surrounding Trump's tariff plans is expected to continue infusing volatility into the markets, benefiting the safe-haven Greenback.
Market watchers are closely monitoring Trump's threatened 25% tariffs on imports from Canada, which could adversely affect the domestic currency and compel the Bank of Canada (BoC) to aggressively cut interest rates, further undermining the commodity-linked Loonie. Over the past month, the USD/CAD pair has oscillated within a familiar range, maintaining its position due to a combination of factors.
Technical indicators on the daily chart remain in positive territory, although they have started losing traction. The USD Index (DXY) is also attracting follow-through buying, building on its overnight recovery from a monthly low. These developments provide crucial support for the USD/CAD pair amid an environment characterized by mixed economic signals.
The Federal Reserve's anticipated rate cuts are holding back further appreciation of the USD/CAD pair. Market participants are factoring in these expected changes in borrowing costs, which are expected to impact broader economic conditions. Meanwhile, sliding oil prices continue to weaken the Loonie, acting as a counterbalance to the USD's modest gains and supporting the currency pair.
The 1.4515 area represents a multi-year peak that could lead spot prices toward conquering the 1.4600 round figure if breached. However, traders remain cautious amid heightened market volatility driven by external factors, including geopolitical uncertainties and fiscal policies.
The looming possibility of a 25% tariff on Canadian imports remains a critical concern for traders and policymakers alike. If implemented, such tariffs could have profound repercussions on Canada's economy and its currency, potentially forcing an aggressive response from the BoC in terms of interest rate adjustments.
As the USD/CAD pair continues to trade within its established range, market players remain vigilant for any shifts in economic indicators that could offer fresh insights into currency movements. In particular, upcoming data releases such as jobless claims and other economic reports could provide additional impetus for traders.