USD/CAD price extends rally as U.S. tariff threats weigh on Canadian dollar
USD/CAD extends gains as US tariff threats weigh on the loonie
The USD/CAD pair has continued its bullish momentum, climbing above $1.4350 in Thursday’s trading session. The Canadian dollar is under pressure as U.S. President Donald Trump confirmed plans to impose 25% tariffs on Canadian goods and 10% tariffs on Canadian energy exports by March.
This move has heightened economic uncertainty, reversing previous delays that were linked to Canada’s efforts to strengthen border security.
The Bank of Canada’s (BoC) dovish stance has further compounded the loonie’s weakness. In response to sluggish economic growth and inflation below target, the BoC has already cut interest rates from 5% to nearly 3%, while also ending its quantitative tightening policy. With the Canadian economy already facing headwinds, the looming trade disruptions have raised concerns that policymakers may need to adjust monetary policy further to support domestic growth.
USD/CAD price dynamics (Jan 2025 - Feb 2025) Source: TradingView.
Technical indicators signal bullish continuation
From a technical perspective, USD/CAD has risen above the nine-day and 14-day Exponential Moving Averages (EMAs), confirming strengthening short-term price momentum. The pair remains well supported by the 14-day Relative Strength Index (RSI) above 50, signaling a prevailing bullish trend.
If the bullish momentum continues, USD/CAD could test the psychological resistance level of 1.4450, which acts as a “pullback resistance” zone. A decisive breakout above this level would pave the way for a rally toward 1.4793, the highest level recorded since March 2003.
On the downside, the nine-day EMA at 1.4286 and the 14-day EMA at 1.4284 serve as immediate support levels. A break below these could weaken short-term price momentum, exposing USD/CAD to a drop toward the two-month low of 1.4151, last recorded on February 14. If the bearish momentum persists, the pair may test the three-month low of 1.3927, last seen on November 25.
Another factor weighing on the Canadian dollar is the continued weakness in crude oil prices. WTI crude remains near a two-month low, as concerns over rising supply expectations and a slowing global demand outlook continue to dominate market sentiment. Given that Canada is a major oil exporter, declining crude prices have further dampened demand for the loonie.
Outlook: USD/CAD likely to remain bullish
Unless there is a significant reversal in trade policy developments or oil prices, the Canadian dollar remains vulnerable in the short term. The USD/CAD pair is expected to stay bullish, with technical indicators supporting further gains toward 1.4450 and beyond. Traders should monitor tariff negotiations, BoC policy signals, and U.S. economic data releases, which will play a crucial role in determining the next major move for the pair.
As previously discussed USD/CAD maintains upward momentum amid trade tensions and BoC’s dovish policy stance.
