- US President Donald Trump announced the start of tariffs on Canada.
- Trump’s tariffs will pressure the Bank of Canada to cut interest rates.
- Canada’s economy contracted by 0.2%.
The USD/CAD outlook indicates a looming trade war between the US and Canada after Trump implemented a 25% tariff on Canadian goods. At the same time, Canada’s economy remains weak, putting pressure on the Bank of Canada to lower borrowing costs. Hence, the price tested fresh multi-decade highs near 1.4800 area.
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US President Donald Trump announced the start of tariffs on Canada, Mexico, and China on February 4th. The US will impose a 25% tariff on goods from Canada, likely leading to a drop in demand and a trade war between the two countries. Top officials in Canada have emphasized their ability to respond appropriately to any heavy tariffs. Moreover, Canada promised to retaliate after Trump’s announcement, meaning a trade war.
The 25% tariff will hurt an already fragile economy, increasing pressure on the Bank of Canada to cut interest rates. Notably, data on Friday revealed that Canada’s economy contracted by 0.2%, a bigger-than-expected decline. The economy has weakened due to high interest rates, forcing policymakers to lower borrowing costs aggressively.
Tariffs will only worsen the situation, leading to a collapse in the Canadian dollar. Canada’s currency fell by 1% in January, its fifth month of declines. Trump’s tariffs might extend this decline, pushing USD/CAD higher.
USD/CAD key events today
USD/CAD technical outlook: Bulls trigger a solid range breakout
On the technical side, the USD/CAD price has finally broken out of consolidation. Bulls broke above the 1.4450 range resistance level with a solid candle. Moreover, the price made a huge gap above the 1.4600 psychological level, indicating a sharp increase in bullish momentum. At the same time, the RSI jumped to the overbought level.
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The bullish move has paused near the 1.4801 level. However, the price trades far above the 30-SMA and might pause or pull back as the SMA catches up. This will also allow the price to fill the gap before continuing higher.
A retreat might pause at the 1.4600 level. If bulls are still strong after a pullback, the price will likely break above the 1.4801 level to make a higher high, confirming a new bullish trend. Bears will only take control if the price breaks below the 30-SMA.
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