The USD/CAD pair is currently steady, influenced by US tariff threats against the EU and Mexico. The US Dollar is trading at about 1.3690 against the Canadian Dollar. Possible tariffs raise concerns for Canadian exports, potentially including a 35% tariff on imports and 50% on copper. Despite these challenges, a strong employment report from Canada has provided some support for the Loonie.

Bank of Canada Rate Cut Speculation

Speculation about the Bank of Canada making rate cuts again has eased for now. Canadian inflation data due Tuesday will help clarify economic trends and the central bank’s plans. The US will also release inflation data, expected to show a 3% rise in core CPI. This could impact the USD/CAD pair by shaping expectations for the Federal Reserve’s interest rate policies. Technically, USD/CAD has pulled back from 1.3713 and is testing the 20-day SMA at 1.3670. Resistance lies at the 50-day SMA around 1.3745, with further targets at 1.3798 and 1.3800.

Future Market Movements

A drop below 1.3670 could lead to further declines towards 1.3539 and 1.3419. The upcoming inflation readings from both countries may play a crucial role in determining future market movements. Price changes for USD/CAD have been quiet, with no strong influence from either side. The pair is just below 1.3700, indicating that investors are pausing to assess uncertainty around US trade policies. The possibility of high tariffs on imports from Mexico and the EU, including raw materials like copper, raises concerns about the Canadian Dollar’s export volume and competitiveness. Since Canada is closely tied to North American supply chains, it may feel the impact quickly. However, last week’s Canadian employment data provided some unexpected support. Increases in full-time jobs and a steady unemployment rate have reassured some that the labor market is stable for now. This has temporarily eased pressure on central bank policymakers and reduced expectations for immediate rate cuts. Still, the situation isn’t entirely clear. Both Canada and the US will release new inflation figures next week. In Canada, market watchers will monitor core measures after months of fluctuations. Any momentum in services inflation or surprises in headline rates could lead to new pricing adjustments. If inflation comes in lower than expected, it might push the central bank toward easing its policies, which would not be good for the Loonie in the short term. In the US, expectations lean toward a stable 3% year-over-year increase in core CPI. If this figure is unexpectedly high, it could suggest that the Federal Reserve still has work to do, delaying any rate cuts. A stronger dollar in this scenario would likely raise the USD/CAD pair, especially if monetary policy differences widen. From a technical standpoint, traders are closely monitoring the 1.3670 level, where the 20-day simple moving average is located. Prices have tested this level multiple times but haven’t broken below it yet. If there’s sustained movement under this level, technical targets for further declines could emerge near 1.3540 and possibly even 1.3420 if selling accelerates. These levels are significant since they represent areas of prior accumulation and could draw renewed interest. On the upside, resistance is near the 50-day moving average just below 1.3750, which has held firm recently despite upward attempts. Beyond this, the 1.3800 level is noteworthy, but reaching it may require an external catalyst, likely from inflation data or shifts in rate expectations. From our perspective, keeping an eye on the dynamics between policy divergence and upcoming inflation data will be crucial. Volatility could rise significantly if either release deviates from expectations. Short-term positions should incorporate volatility considerations and utilize tight stops on momentum trades. Longer-term strategies, particularly straddles and spreads around near-the-money strikes, could benefit from potential price movements in either direction in the coming sessions. Create your live VT Markets account and start trading now.

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