USD/CAD is currently trading at about 1.3960, staying within a narrow range without a clear direction. The Canadian Dollar recently lost strength after hitting a high of 1.3750. The pair remains above the 21-day EMA, but resistance from the 50-day EMA at around 1.4024 is limiting upward movement. In March, Canadian Manufacturing Sales dropped by 1.4% month-over-month, which was slightly better than the expected 1.9% decline. This drop was mainly due to weaker activity in primary metals and petroleum sectors, but it didn’t provide strong support for the Canadian Dollar.

Weakening Market Sentiment

Market sentiment is weakening as the Bank of Canada considers potential interest-rate cuts following disappointing job data for April, which saw unemployment rise to 6.9%. Currently, there’s over a 50% chance of a rate cut in June, putting further pressure on the Loonie. The mid-term direction for CAD is closely tied to trade developments between the US and Canada. The Bank of Canada’s latest report highlighted trade tensions as a major economic threat, warning that increased global protectionism could heighten risks. Despite mixed economic data, the US Dollar Index remains above 100.00. Traders are anticipating key US economic data, including the University of Michigan’s Consumer Sentiment survey, to assess consumer confidence. Next Tuesday, Canada’s GDP report will be closely watched for insights into domestic growth. At present, USD/CAD is hovering around 1.3960, lacking a clear trend and trading in a tight weekly range. After earlier gains, the Canadian Dollar weakened after reaching 1.3750. The price remains above the 21-day EMA, offering some support, but struggling to surpass the resistance at the 50-day EMA near 1.4024, which limits bullish momentum. From an economic standpoint, March’s Canadian Manufacturing Sales saw a 1.4% decline. Although this beat the expected 1.9% drop, it wasn’t enough to change sentiment towards the Loonie significantly. The decline was primarily due to sectors like primary metals and petroleum, which are sensitive to external demand and commodity prices. Since the employment figures in April showed that unemployment rose to 6.9%, sentiment has shifted significantly. This report decreased confidence among consumers and institutions, leading market participants to raise the likelihood of a June rate cut by the Bank of Canada to over 50%. This growing expectation keeps the Canadian Dollar under pressure, especially against a US Dollar that remains strong, holding above the 100.00 mark on the Dollar Index.

Trade Relations and Policy Shifts

From a policy perspective, the latest communications from the central bank included warnings about trade relations. The report highlighted risks associated with widening protectionism that could limit export opportunities and complicate supply chain access. If trade tensions worsen, economic activity in Canada could suffer, which would further weaken the currency. Meanwhile, in the US, the Dollar remains supported by solid domestic indicators and moderating inflation pressures. Attention is now on the upcoming consumer sentiment data from Michigan, which often provides insights into future spending behaviors. Given the American economy’s reliance on consumer spending, sharp movements in this data could influence rate expectations. Next Tuesday, Canada’s GDP report will be crucial for short-term directions. If growth momentum weakens, it will likely reinforce the trend toward policy easing. Conversely, any unexpected strength in output may adjust expectations. For traders using derivative structures tied to USD/CAD, this period of technical uncertainty combined with differing policy directions requires tighter risk management. The current stability around the EMAs creates a compressed setup with potential energy. In the coming days, we will closely monitor how price interacts with these averages and whether economic reports shift positioning decisively. Create your live VT Markets account and start trading now.

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