USD/CAD Outlook: Trade Tensions Escalate With New Tariffs
The USD/CAD outlook shows widening fears of trade wars as Trump implements tariffs on China, Canada, and Mexico. These fears have pushed traders towards the safe-haven dollar, while the Canadian dollar has fallen to a one-month low due to concerns about a weaker economy and lower borrowing costs.
Key Takeaways
- Trump's 25% tariff on imports from Canada and Mexico took effect Tuesday.
- The US president imposed an additional 10% tariff on Chinese goods.
- Fears of trade wars have increased, impacting currency values.
Impact of Tariffs
Trump's 25% tariff on imports from Canada and Mexico came into effect on Tuesday, raising fears of trade wars between these nations. At the same time, the US president imposed an additional 10% tariff on Chinese goods.
Canada has promised retaliatory tariffs on US imports, potentially escalating tensions. The 25% tariff is expected to significantly impact Canada’s economy, as nearly 75% of its goods are exported to the US. The Bank of Canada (BoC) has been working to stimulate the economy with lower borrowing costs, but these tariffs could undo that progress, pushing the BoC towards more aggressive rate cuts.
US Dollar Strengthens
The US dollar has strengthened alongside Treasury yields as investors seek safety amid trade war fears. Recent manufacturing PMI data had little impact on the currency, aligning with expectations.
Upcoming Key Events
Market participants do not anticipate any significant economic reports today, and focus will remain on the impact of Trump’s tariffs.
Technical Analysis: USD/CAD
USD/CAD 4-hour chart
Technically, the USD/CAD price has bounced off the 30-SMA with a strong bullish candle, indicating increased momentum. The price has also broken above the 0.5 Fib level, which previously acted as resistance. This level allowed the price to retest the 1.4400 support level.
USD/CAD may now climb towards the next resistance at 1.4600. If the bullish trend continues, the uptrend could extend beyond 1.4600. However, the RSI has reached overbought conditions several times, showing some signs of weakness.
After the recent steep climb from the 1.1.4150 support level, bulls might be exhausted. Consequently, the price could pause at the next resistance or consolidate before continuing higher.