- USD/CAD catches aggressive bids on Friday in reaction to Trump’s fresh tariff threats.
- Reduced Fed rate cut bets underpin the USD and provide an additional boost to the pair.
- The lack of follow-through buying warrants caution for bulls ahead of Canadian jobs data.
The USD/CAD pair shot to a two-week high on Friday after US President Donald Trump announced more import tariffs, though it continued with its struggle to find acceptance above the 1.3700 round figure. In a dramatic escalation of the trade war, Trump announced a 35% tariff on imports from Canada. Trump told Canadian Prime Minister Mark Carney the new rate would go into effect on August 1 and would increase further if Canada retaliated. This adds to a string of over 20 similar tariff notices Trump has issued since Monday and comes on top of a 50% tariff on US copper imports. Canada and the US have been locked in trade negotiations in hopes of reaching a deal by July 21. However, the latest threat might have shifted that deadline, which weighs heavily on the Canadian Dollar (CAD).
Apart from this, the overnight decline in Crude Oil prices is seen as another factor undermining the commodity-linked Loonie. Furthermore, a broadly firmer US Dollar (USD), bolstered by reduced bets for an immediate interest rate cut by the Federal Reserve (Fed), acts as a tailwind for the USD/CAD pair. Minutes from the June 17-18 FOMC meeting showed on Wednesday that most policymakers remain worried about the risk of rising inflation on the back of Trump’s aggressive trade policies and a narrow support for a near-term reduction in borrowing costs. Adding to this, the upbeat June employment data and Weekly Jobless Claims released on Thursday pointed to a resilient labor market, dashing hopes for a July Fed rate cut and assisting the USD to stand firm near a two-week high.
San Francisco Fed President Mary Daly said that monetary policy is still restrictive and it’s time to think about adjusting the interest rate. Tariffs aren’t as high as they were expected to be and economic fundamentals support a move toward lower rates, Daly added. Separately, Fed Board of Governors member Christopher Waller noted that tariff inflation effects are likely to be short-lived and that a rate cut here would not be politically motivated. Waller – one of the possible favorites to replace Powell in 2026 – made another push for an early interest rate cut. In contrast, St. Louis Fed President Alberto Musalem said that it was too soon to tell if tariffs will have a one-off or a more persistent impact on inflation and it is critical for the Fed to keep long-term inflation expectations anchored.
Nevertheless, traders are still pricing in the possibility of at least two 25 basis points rate cuts by the Fed this year, starting in October. This holds back the USD bulls from placing aggressive bets and keeps a lid on any further gains for the USD/CAD pair. Investors also seem reluctant and opt to wait for the release of the latest Canadian monthly employment figures. This, along with Oil price dynamics, will drive the CAD and provide some impetus to the currency pair. Apart from this, speeches from influential FOMC members might influence the USD and contribute to producing short-term trading opportunities around the pair on the last day of the week.
USD/CAD 4-hour chart
Technical Outlook
The USD/CAD pair is holding above the 200-period Simple Moving Average (SMA) on the 4-hour chart. Moreover, oscillators on the daily chart have just started gaining positive traction and suggest that the path of least resistance for spot prices is to the upside. However, the recent repeated failures to find acceptance above the 1.3700 mark warrant some caution. Hence, it will be prudent to wait for some follow-through buying beyond the 1.3730 area, or the daily swing high, before positioning for further gains. Spot prices might then climb to the 1.3765-1.3770 intermediate hurdle before aiming to reclaim the 1.3800 mark for the first time late May.
On the flip side, the 1.3640-1.3635 area now seems to have emerged as an immediate strong support. A convincing break below, however, could drag the USD/CAD pair back towards the 1.3600 round figure. A convincing break below the latter would expose the monthly low, around the 1.3555 region. Some follow-through selling below the June monthly swing low, around the 1.3540 region, will be seen as a fresh trigger for bearish traders and make the pair vulnerable to accelerate the fall further towards the 1.3500 psychological mark.
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