- The US and Canada agreed to pause the 25% tariff announced on Monday.
- A 10% tariff on Chinese goods took effect on Tuesday.
- Business activity in Canada’s manufacturing sector slowed in January.
The USD/CAD outlook shows a sharp shift in sentiment that has boosted the Canadian dollar. A pause in Trump’s tariffs on Canada allowed the loonie to recover most of its losses from Monday.
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The USD/CAD pair reversed sharply after reports that the US and Canada had reached an agreement that would pause the 25% tariff announced on Monday. This removed the risk of a trade war between the two countries. At the same time, it lifted the dark cloud cast over Canada’s already fragile economy. Avoiding tariffs means that the Bank of Canada can continue at its current pace without fears of further slowdown in the economy. As a result, the Canadian dollar recovered.
However, a 10% tariff on Chinese goods took effect on Tuesday, causing a similar response from China. Authorities in China have promised to implement a 10% duty on US goods starting February 10th. The tariff allowed the greenback to recover against its peers on Tuesday. However, a trade war between China and the US will likely still cause market turmoil.
Elsewhere, data revealed that business activity in Canada’s manufacturing sector slowed in January. This easing came as investors feared the impact of Trump’s tariffs on the economy.
USD/CAD key events today
USD/CAD technical outlook: Whiplash move signals indecision
On the technical side, the USD/CAD price has dropped and filled the gap created in the previous session. At the same time, the price has fallen to retest the 30-SMA and the recently broken range resistance. This has created a whiplash move, indicating a surge in volatility. Moreover, it shows that both bears and bulls are strong. Therefore, although the price broke out of consolidation, there is still no clear direction.
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Currently, the price trades slightly above the 30-SMA, supporting a bullish bias. If bulls regain momentum, USD/CAD will bounce higher to retest the 1.4600 resistance. However, to confirm a bullish trend, the price must make a higher high above the 1.4801 resistance level. Otherwise, USD/CAD might start a new range. On the other hand, if bears overpower bulls, the price will break below the 30-SMA to challenge the 1.4300 range support.
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