The Canadian Dollar (CAD) held steady after a brief rise, staying close to the 1.40 mark. Market changes were affected by uncertainty from President Trump’s tariff threats and the halt in trade talks. President Trump has not shared more details about the suggested 10% tariff on Canada. The ongoing trade tensions could keep the CAD on a defensive stance, even as the Bank of Canada is expected to maintain a neutral position compared to a possibly more accommodating Federal Reserve.

Technical Analysis Of The Canadian Dollar

From a technical perspective, the Canadian Dollar’s short-term status showed little variation. The USD remained strong near the upper 1.39 range, with important support levels at the 40-day (1.3918) and 200-day (1.3955) moving averages. Resistance is found at 1.4080, and further testing at 1.4150/60 retracement resistance may occur. The Canadian dollar is cautious around the 1.40 level as we face mixed signals. The main worry is the ongoing trade uncertainty with the US, which is limiting any potential gains for the loonie. This situation means that traders should be ready for quick price changes based on news headlines. Trade friction is a significant challenge, especially as recent government data reveals that trade between the US and Canada remains over $2.5 billion in goods and services daily. Even vague threats of a 10% tariff could disrupt this flow and heavily impact market sentiment. This makes holding long positions in the Canadian dollar feel quite risky for now.

Bank Of Canada Meeting As A Key Event

The upcoming Bank of Canada interest rate decision is the key event to monitor this week. With Canada’s latest inflation rate for September steady at 2.2%, the Bank may not feel as compelled to cut rates aggressively compared to the US Federal Reserve. This difference in approach could lend some support to the Canadian dollar. In the options market, we can use the technical levels to plan trades for the next few weeks. The 1.3920 level serves as a crucial support area, and if it breaks, we could see a sharper decline that might make put options appealing. On the other hand, if we see a sustained rise above the 1.4080 resistance, it might indicate easing trade fears, offering a chance for call options targeting the 1.4150 level. It’s important to remember the strong rally the loonie had in 2017 when the Bank of Canada hinted at a more hawkish stance than the Federal Reserve. While circumstances are different now, it highlights how quickly market sentiment can change based on central bank policies. Thus, preparing for a possible increase in volatility by using straddles or strangles through the upcoming central bank meetings could be a wise strategy. Create your live VT Markets account and start trading now.

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