Canadian Dollar Forecast: USD/CAD Coils Ahead of Trump Tariffs

Canadian Dollar Outlook: USD/CAD

USD/CAD trades near the monthly low (1.4151) despite the looming Trump tariffs for Canada, and the exchange rate may continue to give back the advance from the December low (1.3991) should it snap the range bound price action from earlier this week.

Canadian Dollar Forecast: USD/CAD Coils Ahead of Trump Tariffs

USD/CAD continues to hold below the 50-Day SMA (1.4342) as it gives back the advance from the start of the week, with the moving average no longer reflecting a positive slope amid the recent depreciation in the exchange rate.

In turn, the weakness in USD/CAD may persist as the Relative Strength Index (RSI) sits at its lowest level since September, but ongoing change in US trade policy may sway the exchange rate as the Bank of Canada (BoC) acknowledges that ‘a protracted trade conflict would lead to a decline in economic activity.’

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The summary from the January meeting suggest the BoC will pursue a proactive approach fulfilling its dual mandate as ‘monetary policy is better positioned to help smooth the economy’s adjustment to a tariff shock,’ and the central bank may alter its forward guidance over the coming months as ‘members agreed that it would be important to provide Canadians with their updated analysis and assessments of the impact of a trade conflict on the economy and inflation as it unfolds.’

As a result, the Canadian Dollar may face headwinds ahead of the next BoC meeting on March 12 as the threat of a trade war puts pressure on Governor Tiff Macklem and Co. to implement lower interest rates, but future announcements by President Donald Trump may sway USD/CAD should Canada and the US strike a deal before the end of the month.

With that said, the range bound price action in USD/CAD may turn out to be temporary as the one-month delay for the Trump tariffs comes to an end, but lack of momentum to hold above the monthly low (1.4151) may push the exchange rate towards the December low (1.3991).

USD/CAD Price Chart – Daily

Chart Prepared by David Song, Senior Strategist; USD/CAD Price on TradingView

• USD/CAD appears to be defending the monthly low (1.4151) as it trades within a narrow range, with a move/close above the 1.4210 (78.6% Fibonacci extension) to 1.4270 (38.2% Fibonacci retracement) zone opening up the 1.4470 (23.6% Fibonacci retracement) to 1.4510 (23.6% Fibonacci extension) region.
• Next area of interest comes in around 1.4600 (61.8% Fibonacci extension) to 1.4660 (38.2% Fibonacci extension), but failure to defend the monthly low (1.4151) may push USD/CAD towards 1.4110 (50% Fibonacci extension).
• Next region of interest comes in around 1.3940 (61.8% Fibonacci retracement) to 1.4000 (62.8% Fibonacci extension), which incorporates the December low (1.3991), with a breach below 1.3850 (50% Fibonacci extension) bringing the November low (1.3821) on the radar.

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--- Written by David Song, Senior Strategist

Follow on Twitter at @DavidJSong