Daily Price Outlook
During the European trading session, the USD/CAD currency pair has sustained its upward trend, trading around 1.4424 and reaching an intraday high of 1.4518. This bullish momentum is largely due to market reactions to recent policy developments.
The Canadian dollar faced selling pressure after US President Donald Trump hinted at imposing 25% tariffs on imports from Canada and Mexico, potentially starting in February. This announcement has fueled fears of economic challenges for Canada, weakening the CAD.
Meanwhile, the US Dollar recovered modestly from its recent two-week low. Traders expect Trump's protectionist policies to drive inflation higher, which could prompt the Federal Reserve (Fed) to maintain its hawkish stance on interest rates. This outlook has supported the USD and pushed the USD/CAD pair higher.
Despite the rally, further gains in the pair are capped by mixed sentiment, with traders weighing the potential economic impacts of tariffs and inflation concerns.
USD/CAD Rises Amid Tariff Concerns and Inflation Data Anticipation
On the CAD front, the Canadian Dollar has come under pressure due to concerns over US President Donald Trump’s plan to impose 25% tariffs on imports from Canada and Mexico by early February.
This announcement has raised fears of economic strain, weakening the CAD against the USD. However, a slight recovery in crude oil prices has supported the commodity-linked Loonie, preventing further declines in the USD/CAD pair.
Traders are also cautious ahead of Canada’s latest inflation report, scheduled for release today. Statistics Canada is expected to report a 1.8% increase in December’s Consumer Price Index (CPI) compared to the previous year.
Core inflation data, which excludes volatile items like food and energy, will also be published by the Bank of Canada (BoC).
While November’s core CPI showed a slight 0.1% monthly contraction, it rose by 1.6% on an annual basis.
These numbers are crucial as they will influence the BoC’s monetary policy decisions, especially after it recently cut interest rates by 175 basis points since June 2024, with the current rate standing at 3.25%.
USD/CAD Fluctuates as Trump’s Tariffs and Inflation Expectations Influence Market Sentiment
On the US front, the broad-based US dollar (USD) is seeing a modest recovery after dropping to a two-week low. This decline was driven by concerns that President Trump's protectionist policies, like imposing tariffs, could push up inflation.
As a result, investors believe the Federal Reserve (Fed) will keep interest rates high, which in turn boosts the USD against the Canadian Dollar (CAD), pushing the USD/CAD pair above the 1.4500 mark. However, several factors are limiting any further gains for the USD.
Investors are also betting that the Fed will reduce interest rates twice by the end of the year. This expectation is based on signs that inflation in the US is slowing down.
As a result, US Treasury bond yields have fallen sharply, which has put some pressure on the USD. Additionally, positive sentiment in the stock markets is making investors less focused on the dollar as a safe-haven asset, further limiting its strength.
Meanwhile, the Canadian Dollar (CAD) is being supported by rising crude oil prices. As a commodity-linked currency, the CAD benefits from oil price gains, which helps keep the USD/CAD pair from rising further.
Traders are also cautious and waiting for Canada's upcoming inflation data, which will play a key role in deciding the future direction of the CAD.
USD/CAD – Technical Analysis
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