The currency pair stabilized around 1.4393 following a tumultuous start to January. On Monday, there was heightened market interest in acquiring the Canadian dollar, which had earlier surged to a monthly peak against the USD. This trend was influenced by a weaker USD and a more favorable risk sentiment in the global markets.
Factors Affecting the Canadian Dollar
The Loonie gained traction after US President Donald Trump urged for an immediate interest rate reduction, subsequently putting pressure on the USD. Additionally, an increased risk appetite among investors bolstered currencies such as the CAD.
However, uncertainties about the Canadian dollar’s capacity to strengthen further persist due to ongoing trade policy concerns. The possibility of the US imposing 25% tariffs on Canadian imports in February 2025 has raised apprehensions. Such a move might compel the Bank of Canada to consider a 25 basis point interest rate cut in its upcoming meeting.
Moreover, the continuous drop in commodity prices—crucial for Canada’s economy—compounds the uncertainty. The oil sector is particularly anxious about how tariffs might affect Canada, Mexico, and China, along with the implications for global energy demand and economic growth.
Technical Analysis of USD/CAD
On the H4 chart, USD/CAD is trading within a broad consolidation range around the 1.4384 level. There is potential for a short-term increase to 1.4455. If this level is reached, a reversal may occur, leading to a downward movement targeting 1.4255. The MACD indicator supports this view, showing its signal line below the zero line, indicating the possibility of further declines.
On the H1 chart, the pair has traced a local decline to 1.4300 before rebounding to 1.4377. The market appears to be forming a consolidation range near this level. A breakout to the upside could see the range extend to 1.4455, while a downward breakout would suggest a potential move towards 1.4255. This scenario aligns with the Stochastic oscillator, which indicates a downward trend with its signal line below the 80 mark, moving sharply towards 20, highlighting bearish momentum.
Conclusion
The recent appreciation of the Canadian dollar is attributable to short-term factors such as a weaker USD and heightened risk sentiment in the markets. Yet, its future remains uncertain due to risks from oil prices and potential US trade tariffs. Technically, the USD/CAD pair is consolidating, with critical levels to monitor at 1.4455 on the upside and 1.4255 on the downside. Market participants will keep a close eye on developments in US trade policy and the Bank of Canada’s forthcoming interest rate decision for further direction.
Disclaimer
The forecasts presented here reflect the author’s personal opinion and should not be taken as trading advice. RoboForex is not liable for any trading outcomes based on the recommendations and analyses provided.
