USDCAD Reverses Tariff-Driven Surge as Oil Gains Boost the Loonie

The USDCAD currency pair spiked to 1.47920 in early February following Trump’s tariff announcement but subsequently reversed, falling over 3.3% due to technical weaknesses and easing fundamental pressures. Although the pair remains in a bearish trend, it has not been firmly confirmed yet.

The Canadian dollar appreciated as oil prices rose and doubts emerged regarding U.S. tariffs. Additionally, strong domestic data provided support for the loonie. Meanwhile, the U.S. dollar declined by 0.37% as Fed Chair Powell indicated that there was no urgency for rate cuts, despite ongoing trade uncertainties.

Wednesday 15:30 (GMT+2) – USA: CPI m/m (USD)
Wednesday 17:30 (GMT+2) – USA: Crude Oil Inventories (USD)
Thursday 09:00 am (GMT+2) – UK: GDP m/m (GBP)
Thursday 09:30 am (GMT+2) – Switzerland: CPI m/m (CHF)
Thursday 15:30 (GMT+2) – USA: PPI m/m (USD)
Thursday 15:30 (GMT+2) – USA: Unemployment Claims (USD)
Friday 15:30 (GMT+2) – USA: Retail Sales m/m (USD)

The USDCAD currency pair surged to a high of 1.47920 in early February, driven by market reactions to President Trump’s announcement of an additional 25% tariff on Canadian imports. However, this bullish momentum proved unsustainable, as the pair quickly reversed course, initiating a downtrend. Over the subsequent period, USDCAD declined by more than 3.3%, a move underpinned by a combination of technical factors and shifting fundamental dynamics.

From a technical perspective, the initial bearish signal emerged as prices fell below both the 20-period and 50-period Exponential Moving Averages (EMAs), highlighting a marked increase in selling pressure. Further reinforcing this outlook, key indicators point to sustained downside risks: the Momentum oscillator has slipped below the 100 threshold, while the Relative Strength Index (RSI) remains under the 50 mark, both indicative of continued bearish momentum in the near term.

A critical level to watch is the 1.42689 support. A decisive break below this level could open the way for further declines, solidifying the bearish trend. However, it’s worth noting that the 20-period EMA has not yet crossed below the 50-period EMA, suggesting that while the current sentiment is bearish, a full confirmation of a longer-term downtrend is still pending.

Should the buyers take market control, traders may direct their attention toward the four potential resistance levels below:

1.43759: The first level of resistance is projected at 1.43759, which aligns with the daily high reached on February 10.
1.44493: The second price target is seen at 1.44493, aligning with the weekly Pivot Point, PP, calculated using the standard methodology.
1.46298: The third price objective is estimated at 1.46298, representing the weekly resistance, R1, calculated using the standard Pivot Points methodology.
1.47920: An additional price target is established at 1.47920, reflecting the daily high reached on February 3.

Should the sellers maintain market control, traders may consider the four potential support levels listed below:

1.42689: The initial support level is identified at 1.42689, representing the low point recorded on February 5.
1.41770: The second support level is seen at 1.41770, reflecting a peak from November 26.
1.40958: The third support level is positioned at 1.40958, aligning with 261.8% Fibonacci Extension drawn from 1.42689 to 1.43759.
1.39226: An additional downside target is noted at 1.39226, corresponding to 423.6% Fibonacci Extension drawn from 1.42689 to 1.43759.

The Canadian dollar strengthened against the U.S. dollar, buoyed by rising oil prices and market doubts about the likelihood of the U.S. enforcing proposed tariffs on trading partners. Although President Trump signed directives imposing steel and aluminum tariffs, their March 12 start date and a 30-day pause on steep tariffs for Canada and Mexico have led analysts to view the measures as negotiating tools. Oil, a key Canadian export, climbed for the third straight day, while Canadian building permits rose 11% in December. Canadian 10-year bond yields also increased, reaching their highest level since early February.

On the other hand, the U.S. dollar fell 0.37% on Tuesday as Federal Reserve Chair Jerome Powell indicated no urgency for further rate cuts, citing a strong economy with low unemployment and persistent inflation above the Fed’s 2% target. Market concerns over new U.S. tariffs also eased, as traders grew skeptical about their implementation despite President Trump’s recent threats of additional duties on steel and aluminum imports.

The USDCAD remains in a bearish phase after an initial spike driven by tariff news, though a full downtrend is not yet confirmed. The Canadian dollar continues to find support from rising oil prices and strong domestic data, while skepticism over U.S. tariff enforcement further bolsters the loonie. Conversely, the U.S. dollar has weakened slightly as the Fed maintains a cautious stance on rate cuts, despite ongoing trade uncertainties. Market participants will be closely watching upcoming economic data for further direction, particularly U.S. inflation figures and retail sales, which could influence both currencies’ trajectories.