USD/CAD is trading around 1.3960, showing no clear direction and remains within a narrow weekly range. The Canadian Dollar recently lost momentum after peaking at 1.3750, with the pair staying above the 21-day EMA, while the 50-day EMA around 1.4024 limits upward movement.

In March, Canadian Manufacturing Sales decreased by 1.4% MoM, less than the originally estimated 1.9% drop. The reduction was mainly due to weaker activities in primary metals and petroleum sectors, although the smaller contraction did not provide much support to the Canadian Dollar.

Weakening Market Sentiment

Market sentiment is weakening as potential interest-rate cuts by the Bank of Canada are being considered after disappointing job data in April, which revealed unemployment rising to 6.9%. There is now over a 50% chance of a rate cut in June, further affecting the Loonie.

CAD’s mid-term direction is closely linked to US-Canada trade developments. The Bank of Canada’s recent report singled out trade tensions as the largest threat to the economy, warning that increased global protectionism could increase risks.

Despite mixed data, the US Dollar Index remains above 100.00. Traders await key US economic data, including the University of Michigan’s Consumer Sentiment survey, to gauge consumer mood. Next Tuesday, Canada’s GDP report will be watched for domestic growth insights.

Currently, the USD/CAD holds close to 1.3960 without presenting any clear trend, tracing a rather tight range within the week. Earlier strength in the Canadian Dollar faded after reaching 1.3750. Since then, price action has remained above the 21-day Exponential Moving Average (EMA), which points to some underlying support. However, upwards movements are struggling to break through the resistance around the 50-day EMA near 1.4024, placing a lid on bullish momentum for now.

From a macroeconomic angle, March’s Canadian Manufacturing Sales came in with a 1.4% monthly decline. Although this was somewhat better than the anticipated 1.9% drop, the data didn’t carry enough weight to shift appetite back toward the Loonie. Most of the drag stemmed from areas such as primary metals and petroleum, sectors often sensitive to external demand and commodity pricing.

There’s been a marked shift in sentiment since April’s employment figures showed the jobless rate rising to 6.9%. That release did more than just dent consumer and institutional confidence; it pushed market participants to raise the odds of a June rate cut by the Bank of Canada to over 50%. As such, any potential dovish move now feels more like a matter of timing than possibility. That growing conviction leaves the Canadian Dollar on the defensive, especially when paired against a US Dollar that is holding firm above the 100.00 handle on the Dollar Index.

Trade Relations and Policy Shifts

From a policy perspective, the most recent communication from the central bank included an explicit caution on trade relations. The report underlined the risks linked to widening protectionist policies, particularly how these could restrict export opportunities and complicate supply chain access. If tensions intensify, we may see added pressure on economic activity north of the border, and with it, reduced support for the currency.

Meanwhile, over in the US, the Dollar remains anchored by strong domestic indicators and moderating inflation pressures. Focus now shifts to upcoming consumer sentiment figures out of Michigan. This particular dataset often reflects a forward-looking view of spending behaviour, and given the consumer-heavy nature of the American economy, it could sway rate expectations in a persistent way if it moves sharply in either direction.

Attention will also turn next Tuesday to Canada’s GDP report. That print will likely act as a short-term directional catalyst. If momentum on the growth side turns sluggish, then it would only reinforce the current bias toward policy easing. In contrast, any surprise resilience in output may recalibrate expectations slightly.

For traders working with derivative structures tied to USD/CAD, this phase of technical indecision layered with divergent policy leanings calls for tighter risk parameters. The current stalling around EMAs forms a compressed setup with decent potential energy. Our focus in the coming days will remain on how price reacts at those two anchored averages and whether macro prints tilt positioning in a more assertive direction.

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