USD/CAD poised to surpass 1.4200 amid tariff threats and oil weakness
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The USD/CAD pair surged to 1.4175-1.4180 on Tuesday, marking its highest level since April 2020, driven by renewed US Dollar (USD) strength and a weakening Canadian Dollar (CAD). The move comes as US President-elect Donald Trump announced plans to impose a 25% tariff on imports from Mexico and Canada, alongside a 10% tariff on goods from China. This escalation in trade tensions undermines the CAD, already pressured by declining oil prices.
Key drivers behind USD/CAD’s bullish momentum
Trump’s tariff threat has triggered fears of a disrupted regional free trade agreement, heavily weighing on the CAD. The situation is exacerbated by an overnight decline in Crude Oil prices, spurred by reports of a potential ceasefire agreement between Israel and Hezbollah. As a commodity-linked currency, the CAD remains highly sensitive to oil price movements, and the drop in crude has overshadowed reduced expectations for aggressive Bank of Canada (BoC) rate cuts in December.
Meanwhile, rising US Treasury bond yields, driven by expectations of inflationary pressures under Trump’s administration, have revived demand for the USD. While Scott Bessent’s nomination as Treasury Secretary initially offered some respite, market participants are now pricing in a slower pace of Fed rate cuts, further bolstering the USD.
Despite the broader risk-on sentiment, which typically weighs on the safe-haven USD, the USD/CAD pair continues to attract bullish interest, supported by technical strength and fundamental drivers.
Technical outlook: Path of least resistance favors the upside
From a technical perspective, the pair has achieved a decisive breakout above the 1.4100 mark, reinforcing the bullish bias. Oscillators on the daily chart remain firmly in positive territory, signaling that any pullback is likely to be viewed as a buying opportunity. The 1.4055 level now serves as a strong near-term base, limiting potential downside risks.
On the upside, the multi-year peak at 1.4175-1.4180 acts as the immediate resistance. A sustained move above this level would pave the way for further gains, with the next significant targets at the psychological 1.4200 mark, followed by intermediate resistance near 1.4265. A breakout above 1.4265 would set the stage for a retest of the April 2020 high at 1.4300.
Market focus and outlook Market participants will closely monitor the release of the FOMC meeting minutes for insights into the Fed’s rate path, alongside key US data, including the Conference Board’s Consumer Confidence Index and Richmond Manufacturing Index. Later this week, revised US Q3 GDP data and the US Personal Consumption Expenditure (PCE) Price Index will provide additional clues on inflation trends and monetary policy.
For traders, the USD/CAD pair offers a favorable setup for continued bullish momentum. While immediate hurdles near 1.4200 may prompt some consolidation, the prevailing drivers—tariff threats, oil price weakness, and USD strength—suggest the pair’s trajectory remains firmly upward in the near term. Tactical opportunities lie in buying dips toward the 1.4055 support zone, targeting higher levels as geopolitical and economic factors unfold.
Key drivers behind USD/CAD’s bullish momentum
Trump’s tariff threat has triggered fears of a disrupted regional free trade agreement, heavily weighing on the CAD. The situation is exacerbated by an overnight decline in Crude Oil prices, spurred by reports of a potential ceasefire agreement between Israel and Hezbollah. As a commodity-linked currency, the CAD remains highly sensitive to oil price movements, and the drop in crude has overshadowed reduced expectations for aggressive Bank of Canada (BoC) rate cuts in December.
Meanwhile, rising US Treasury bond yields, driven by expectations of inflationary pressures under Trump’s administration, have revived demand for the USD. While Scott Bessent’s nomination as Treasury Secretary initially offered some respite, market participants are now pricing in a slower pace of Fed rate cuts, further bolstering the USD.
Despite the broader risk-on sentiment, which typically weighs on the safe-haven USD, the USD/CAD pair continues to attract bullish interest, supported by technical strength and fundamental drivers.
Technical outlook: Path of least resistance favors the upside
From a technical perspective, the pair has achieved a decisive breakout above the 1.4100 mark, reinforcing the bullish bias. Oscillators on the daily chart remain firmly in positive territory, signaling that any pullback is likely to be viewed as a buying opportunity. The 1.4055 level now serves as a strong near-term base, limiting potential downside risks.
On the upside, the multi-year peak at 1.4175-1.4180 acts as the immediate resistance. A sustained move above this level would pave the way for further gains, with the next significant targets at the psychological 1.4200 mark, followed by intermediate resistance near 1.4265. A breakout above 1.4265 would set the stage for a retest of the April 2020 high at 1.4300.
Market focus and outlook Market participants will closely monitor the release of the FOMC meeting minutes for insights into the Fed’s rate path, alongside key US data, including the Conference Board’s Consumer Confidence Index and Richmond Manufacturing Index. Later this week, revised US Q3 GDP data and the US Personal Consumption Expenditure (PCE) Price Index will provide additional clues on inflation trends and monetary policy.
For traders, the USD/CAD pair offers a favorable setup for continued bullish momentum. While immediate hurdles near 1.4200 may prompt some consolidation, the prevailing drivers—tariff threats, oil price weakness, and USD strength—suggest the pair’s trajectory remains firmly upward in the near term. Tactical opportunities lie in buying dips toward the 1.4055 support zone, targeting higher levels as geopolitical and economic factors unfold.