USD/CAD price spikes 1.6% as Trump announces 25% tariffs on Canada
USD/CAD surges 1.6%, hitting a five-year high at 1.4520 amid tariff concerns
The USD/CAD pair experienced a remarkable surge of 1.6% during the Asian session on Tuesday, January 21st, reaching a fresh five-year high of 1.4520.
This marks the most significant daily increase since December 2022, following a sharp 1.5% decline on January 20, which coincided with the inauguration of U.S. President Donald Trump.
The price spike followed President Trump's announcement of plans to impose 25% tariffs on imports from Canada and Mexico, starting as early as February. This statement put heavy pressure on the Canadian Dollar (CAD), triggering broad selling. The prospect of these tariffs is expected to fuel inflationary concerns in the U.S., which in turn could force the Federal Reserve to maintain a more hawkish stance on interest rates. As a result, the U.S. dollar (USD) showed a modest recovery from the overnight slump that had seen it drop to a two-week low, further boosting the USD/CAD pair and pushing it beyond the psychological 1.45 mark.
Canada latest consumer inflation figures to influence USD/CAD price outlook
Currently, in the European session, the USD/CAD pair is trading at 1.4435, reflecting a slight retracement from the day’s highs. This pullback is seen within the broader pattern observed on the price chart, where the pair has been fluctuating within an expanding symmetrical triangle formation.
USD/CAD price dynamics (December 2024-January 2025). Source: TradingView.
From a technical perspective, both the daily and 4-hour Relative Strength Index (RSI) readings are above the 50 mark, suggesting bullish momentum in the short term. This signals that while the pair has experienced a significant move, there is still potential for upward movement if key levels, such as 1.4520, hold firm.
Market participants now await the release of Canada’s latest consumer inflation figures later today. Expectations around these figures could drive further volatility, adding an extra layer of uncertainty for the CAD. Inflation in both the US and Canada will likely remain a focal point for traders, as the outcome could influence the Fed’s future decisions on interest rates.
The USD/CAD pair pulled back slightly in Monday's Asian trading after reaching its highest level since March 2020. A dip in the U.S. dollar was influenced by softening inflation expectations and risk-on sentiment.
