The USD/CAD pair is currently trading flat, influenced by US tariff threats against the EU and Mexico. The US Dollar is counted at around 1.3690 against the Canadian Dollar.
Potential tariffs pose a risk to Canadian exports, including a possible 35% tariff on imports and 50% on Copper. Despite these challenges, Canada’s strong employment report offered some support to the Loonie.
Bank of Canada Rate Cut Speculation
Speculation regarding the Bank of Canada resuming rate cuts has been temporarily eased. Canadian inflation data due on Tuesday will further clarify economic trends and the Bank of Canada’s direction.
The US will also release its inflation data with an expected 3% increase in core CPI. This could affect the USD/CAD pair by influencing expectations of the Federal Reserve’s future interest rate policies.
Technically, USD/CAD has retreated from 1.3713 and is testing the 20-day SMA at 1.3670. Resistance is at the 50-day SMA around 1.3745 with further targets at 1.3798 and 1.3800.
Future Market Movements
A close below 1.3670 might lead to further declines towards 1.3539 and 1.3419. The inflation readings due from both countries could be pivotal in determining future market movements.
So far, price movements in the USD/CAD have been subdued, with neither side asserting a strong grip. The pair is hovering just below 1.3700, suggesting a pause among investors as they process uncertainty around US trade policies. The potential imposition of steep tariffs targeting imports from Mexico and the EU, including raw materials like copper, introduces downside risk to the Canadian Dollar due to concerns over export volume and trade competitiveness. Canada, being tightly integrated into supply chains across North America, would bear the impact swiftly.
However, last week’s Canadian employment figures provided an unexpected lift. Gains in full-time positions and a resilient unemployment rate offered reassurance that the country’s labour market is holding steady, at least for now. This has slightly eased pressure on policymakers at the central bank and has caused a temporary lull in rate cut expectations.
Nevertheless, the picture isn’t fully settled. Both Canada and the US are set to release fresh inflation figures next week. On Canada’s side, market participants will be watching how core measures behave after months of oscillating in a narrow band. Momentum in services inflation or any surprise in headline rates could stir another round of pricing adjustments. If inflation comes in softer than anticipated, it could nudge the central bank closer to easing policies sooner, which wouldn’t bode well for the Loonie in the short run.
Over in the US, expectations are tilted towards a stable 3% year-over-year increase in core CPI. Should this print come in unexpectedly high, it might reinforce the view that the Federal Reserve still has work to do—putting rate cuts off the table for some time. A stronger dollar in that case would weigh on the Canadian side of the pair and push USD/CAD higher, particularly if the disparity in monetary policy grows.
From a technical perspective, traders have been closely watching the 1.3670 level, just where the 20-day simple moving average lies. Price has tested it several times, but a clean break below it hasn’t happened yet. If we see sustained movement under this level, technical downside targets would quickly open up nearer to 1.3540, and even as low as 1.3420 is possible if selling strengthens. These levels represent zones where previous accumulation occurred, and therefore may attract fresh interest.
On the topside, resistance sits near the 50-day moving average just below 1.3750. This has held firm recently, despite attempts to break higher. Beyond this, the 1.3800 round figure draws attention, but reaching it likely requires input from an external catalyst—likely inflation data or a shift in rate expectations.
From our angle, watching the dynamic between policy divergence and reaction to upcoming inflation data will be key. Volatility could increase meaningfully if either release surprises versus expectations. Short-term derivative positions should be structured with volatility in mind, making use of tight stops where momentum trades are taken. Longer-term exposure, particularly straddles and spreads around near-the-money strikes, may benefit from the potential for movement in either direction over the coming sessions.
