Daily Price Outlook
During the European trading session, the USD/CAD currency pair failed to stop its downward trend and remained under pressure around below 1.4200 level.
The Canadian Dollar (CAD) gained strength against the US Dollar (USD), largely driven by recent developments in global trade dynamics and rising expectations for US Federal Reserve rate cuts. These factors combined with a shift in investor sentiment towards riskier assets, further pressuring the USD/CAD pair.
Canada Avoids New Tariffs, Providing Support for CAD
However, the factors contributing to the Loonie's outperformance is Canada's ability to avoid new tariffs imposed by US President Donald Trump. Last week, Trump unveiled sweeping new tariffs on dozens of countries, imposing a 10% baseline tariff on all imports to the US, alongside higher duties on some major trading partners.
However, Canada and Mexico were notably spared in this round, with the exception of auto exports, as well as steel and aluminum, which fall under separate tariff policies.
This development has offered some much-needed support to the Canadian Dollar, as it remains relatively shielded from the growing global trade war. According to Jayati Bharadwaj, a global FX strategist at TD Securities, "CAD is outperforming non-USD peers as Canada remains relatively shielded from the new round of tariffs."
Fed Rate Cut Expectations Grow Amid Rising Recession Fears
Meanwhile, the US Dollar is facing downward pressure as investors raise their bets on additional interest rate cuts from the US Federal Reserve.
The latest US tariff impositions have sparked concerns of a potential recession, with markets now pricing in a nearly 65% chance of a Fed rate cut in May.
Moreover, futures are indicating approximately 100 basis points worth of rate reductions by December 2025, according to the CME FedWatch tool.
Therefore, the growing expectations for US interest rate cuts put downward pressure on the USD, weakening the US Dollar against the Canadian Dollar (CAD), contributing to the USD/CAD pair's decline.
USD/CAD Outlook: Impact of US Economic Data, Fed Policy, and Global Trade Developments
Looking ahead, the USD/CAD pair's direction will largely depend on developments surrounding the US economy and any potential shifts in Fed policy. With growing recession fears and the likelihood of further rate cuts, the USD may continue to face downward pressure.
On the other hand, the CAD may maintain its strength, aided by Canada's avoidance of new tariffs and its relative immunity to the global trade tensions.
In the coming weeks, traders will closely monitor the impact of these factors on the USD/CAD pair, particularly as US economic data and Fed commentary continue to shape market expectations.
USD/CAD – Technical Analysis
USD/CAD is trading at $1.41636, leaning bearish after failing to break above the $1.42204 resistance level. The pair continues to struggle under a descending trendline and the 50-period SMA at $1.42646, both of which cap upside momentum.
Price recently attempted a corrective move, but selling pressure resumed near $1.42200, suggesting bears remain in control. The setup shows potential for a deeper decline, particularly if price breaks and holds below $1.41600.
On the downside, key support is seen at $1.41024—just above the April low. A break beneath this level could open the door to $1.40308 and potentially $1.39619 in extension.
The RSI at 41.16 remains below the neutral 50 mark, indicating momentum is soft and still favors sellers. If price fails to reclaim $1.42204 and stays below the 50 SMA, a bearish continuation becomes increasingly likely.
Traders will want to see a sustained move under $1.41600 to confirm the breakout, ideally on increased volume and without immediate rejection. Until then, short-term price action remains vulnerable to minor retracements.
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