USD/CAD price strengthens as tariff concerns and economic uncertainty weigh on CAD
USD/CAD climbs toward 1.4350 as U.S. dollar strengthens
The USD/CAD pair surged toward 1.4350 on Wednesday as the U.S. dollar strengthened against the Canadian dollar, driven by rising U.S. Treasury yields and heightened trade tensions between the two countries.
The U.S. Dollar Index (DXY) climbed near 106.50, buoyed by hawkish Fed expectations and rising bond yields, with the 2-year and 10-year Treasury yields reaching 4.13% and 4.33%, respectively.
Market sentiment was further impacted by U.S. President Donald Trump’s confirmation that 25% tariffs on Canadian and Mexican imports will proceed as planned on March 4. Trump reiterated that the U.S. does not need Canadian crude oil or lumber, a statement contradicting the historically interdependent energy trade between the two nations.
USD/CAD price dynamics (January 2025 - February 2025) Source: TradingView.
Crude oil weakness adds pressure on CAD
The Canadian dollar has been underperforming, weighed down by falling crude oil prices. West Texas Intermediate (WTI) crude dropped below $69.00 per barrel, reflecting concerns over weakening global demand and potential peace talks between Russia and Ukraine. The possibility of lifting sanctions on Russian oil exports could further depress global oil prices, negatively impacting the commodity-linked CAD.
Meanwhile, the Bank of Canada’s policy stance remains uncertain. Despite a slight acceleration in Canada’s consumer inflation, expectations for an additional BoC rate cut in March have diminished, lending some support to CAD. However, fears surrounding the U.S. trade stance and broader economic uncertainty continue to dominate market sentiment.
Market outlook and key levels
From a technical perspective, USD/CAD remains in an uptrend, trading above 1.4330, with key resistance at 1.4375 and support near 1.4200. The options market reflects growing concern, with the one-month skew for USD calls and CAD puts remaining elevated at 1.7% volatility, indicating investors’ anticipation of further CAD depreciation.
Going forward, market participants will closely watch U.S. economic data releases, including the Conference Board’s Consumer Confidence Index and PCE inflation data. Given the heightened trade risks and global economic uncertainty, USD/CAD is expected to remain volatile, with further upside potential if tariffs escalate further.
Earlier, we discussed how the Canadian dollar remains vulnerable amid falling crude oil prices and trade tensions, with the BoC’s policy stance remaining unclear. USD/CAD’s continued uptrend suggests that further volatility is expected in response to economic data and geopolitical developments.
