USD/CAD price forecast: Loonie declines as trade war fears grow
USD/CAD rises as trade war concerns and oil price declines
The USD/CAD pair continues to strengthen, trading around the 1.45 psychological level during the Asian session on Tuesday. The Canadian dollar has faced sustained weakness, marking its eighth consecutive session of losses, driven by escalating trade tensions between the U.S. and Canada.
President Donald Trump reaffirmed his decision to impose 25% tariffs on Canadian and Mexican goods, eliminating previous hopes of a delay. This move has fueled concerns over economic repercussions for Canada, which relies heavily on trade with the U.S.
Additionally, declining crude oil prices have added further pressure on the Canadian dollar. The commodity-linked Loonie is struggling amid fears that a trade war could significantly impact oil exports. Meanwhile, the U.S. dollar has gained strength as markets anticipate that prolonged inflationary pressures may lead the Federal Reserve (Fed) to maintain higher interest rates for longer.
USD/CAD price analysis (Jan 2025 - Mar 2025) Source: TradingView.
Technical Indicators Support Bullish Outlook for USD/CAD
From a technical perspective, USD/CAD remains in a bullish consolidation phase, supported by a rebound from the 50-day Simple Moving Average (SMA) and a break above the 50% Fibonacci retracement level of the February decline. The 14-day Relative Strength Index (RSI) remains in positive territory, reinforcing the bullish sentiment.
Key resistance levels include 1.4545, which aligns with the 61.8% Fibonacci retracement level. A decisive move above this zone could pave the way for 1.4600 and potentially 1.4700, marking the highest level since April 2003.
On the downside, initial support is seen at 1.4470, followed by the 1.4400 zone, where buyers may re-enter the market. A break below this level could trigger further declines toward 1.4360-1.4350, which coincides with the 50-day SMA. If bearish pressure intensifies, the next major support level sits at 1.4300, aligning with the 23.6% Fibonacci retracement level.
Bank of Canada rate decision and trade policy in focus
The Bank of Canada (BoC) is set to announce its next monetary policy decision next week, following a 25-basis-point rate cut in January, bringing the benchmark rate to 3%. Since June 2024, the BoC has reduced rates by a total of 200 basis points to counter slowing economic growth. However, rising trade tensions could prompt policymakers to reassess their stance, especially if tariffs begin to weigh on Canada’s GDP.
Traders will also closely watch upcoming U.S. economic data, including Nonfarm Payrolls (NFP) and inflation reports, for additional clues on the Fed’s policy path. The market remains cautious, with growing speculation that Trump’s tariffs could force the Fed to adjust its outlook on inflation and interest rates.
As previously discussed, the USD/CAD price forecast remains bullish, with strong technical and fundamental indicators favoring further upside in the near term. However, trade policy developments and the BoC’s response will play a crucial role in shaping market direction.
