The USD/CAD pair has seen follow-through buying for the second consecutive day on Monday, edging higher as it builds on last week’s modest recovery from the 1.4030-1.4025 region, the year-to-date low. Spot prices are currently hovering in the mid-1.4200s, up by nearly 0.25% for the day. However, bulls may prefer to wait for a sustained break above the 100-day Simple Moving Average (SMA) before committing to fresh positions amid mixed fundamental signals.
Crude Oil Slump and Trade Concerns Weigh on Canadian Dollar
A significant drop in crude oil prices, now at a four-year low, continues to pressure the Canadian Dollar (CAD). The decline in oil prices is fueled by concerns that President Donald Trump’s aggressive reciprocal tariffs could spark a global trade war, potentially weakening fuel demand. Moreover, the unexpected decision by eight OPEC+ members to accelerate plans to phase out production cuts has raised fears of oversupply, further dampening crude oil prices.
The outlook for the CAD is also clouded by political uncertainty in Canada ahead of the snap election scheduled for April 28. Combined with disappointing domestic employment data released last Friday, these factors have undermined the commodity-linked Loonie, contributing to the upward momentum in the USD/CAD pair.
US-Canada Trade Tensions Fuel USD/CAD Upside Bias
Rising trade tensions between the US and Canada are further supporting the USD/CAD pair. Canadian Prime Minister Mark Carney confirmed last Thursday that Canada’s previously announced retaliatory tariffs would remain in place, including a 25% tariff on all US vehicles that do not comply with the USMCA trade agreement. This escalation in trade conflict, along with increased demand for the US Dollar (USD) following its dip in the Asian session, adds additional support to the USD/CAD pair.
USD Gains on Strong Economic Data, but Fed Concerns Persist
The US Dollar is maintaining its modest recovery gains from Friday, supported by stronger-than-expected US Nonfarm Payrolls (NFP) data and hawkish remarks from Federal Reserve (Fed) Chair Jerome Powell. The data showed an unexpected increase in jobs, bolstering confidence in the US economy. Additionally, the prevailing risk-off environment has benefitted the Greenback, reinforcing its status as a safe-haven asset.
However, despite these gains, the USD’s upward momentum may be limited. Market participants are still betting on the potential economic slowdown triggered by tariffs, which could force the Fed to resume its rate-cutting cycle soon. This sentiment is capping any meaningful USD appreciation, which may keep the USD/CAD pair in check, making it a cautious environment for bulls.
Technical Outlook: USD/CAD Faces Key Resistance
From a technical perspective, the USD/CAD pair faces immediate resistance at the 100-day SMA. A sustained break above this level could signal further upside potential, but bulls are likely to remain cautious given the mixed fundamentals. On the downside, support levels are seen at the 1.4100 region, with any extended pullback likely finding buying interest around the 1.4000 mark.
In summary, while the USD/CAD pair benefits from a combination of falling oil prices, rising US-Canada trade tensions, and a supportive risk-off environment for the USD, the potential for a sustained rally remains constrained by the looming threat of a US economic slowdown due to tariffs. Investors will be keenly watching developments on both the economic and political fronts in the coming days.
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