- Inflation data solidified bets for at least two Fed rate cuts this year.
- Trump’s policy proposals have ignited bets of robust demand.
- Trump has threatened to impose a 25% tariff on goods imported from Canada.
The USD/CAD outlook suggests growing bullish sentiment as the Canadian dollar weakens ahead of Trump’s likely import tariffs. Meanwhile, the dollar regained momentum as market participants eagerly awaited Trump’s inauguration speech.
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The Canadian dollar has dropped recently as markets have shifted their focus from economic data to the new US administration. Last week, inflation data solidified bets for at least two Fed rate cuts this year. However, it only kept the dollar down for some time.
With Trump as the new president, the US economy is set to grow faster. His policy proposals have ignited bets of robust demand and higher inflation. As a result, the outlook for US monetary policy has shifted to a more gradual one, supporting the dollar.
On the other hand, the Canadian dollar is one of the currencies that will suffer the most if Trump implements his policy proposals. The incoming president has threatened to impose a 25% tariff on goods imported from Canada. If he implements this, it will significantly hurt Canada’s economy, pushing the Bank of Canada to lower borrowing costs further. Such an outcome would weaken the Canadian dollar. On the other hand, if he is not as aggressive as previously thought, the dollar might pull back, relieving the loonie.
USD/CAD key events today
Market participants are only looking forward to Trump’s inauguration speech since neither the US nor Canada will release key reports.
USD/CAD technical outlook: Bullish range breakout
On the technical side, the USD/CAD price has made a milestone move, breaking out of its range. For a long time, the price was trapped in a sideways move between the 1.4300 support and the 1.4450 resistance. This consolidation came after a solid bullish trend, indicating a pause as bulls regained momentum.
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The price eventually broke above the 1.4450 resistance level and pulled back to retest it. The previous bullish trend will continue if the price bounces off this level to make a higher high. It will likely rise past the 1.4501 key level.
However, if the price fails to continue higher, it might fall back into the consolidation area. Such an outcome would signal a false breakout, leading to a retest of the range support level.
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