USD/CAD price declines as Trump advocates immediate rate cuts and tariff increases
USD/CAD tumbles to 1.4320 after Trump advocates interest rate cuts
The USD/CAD pair dropped sharply to 1.4320 during Friday’s North American session as the U.S. dollar faced significant selling pressure. The decline was triggered by U.S. President Donald Trump’s call for immediate interest rate cuts during his address at the World Economic Forum (WEF) in Davos.
This announcement came just days before the Federal Reserve’s (Fed) first monetary policy meeting on January 28-29, where rates are expected to remain steady at 4.25%-4.50%. The U.S. Dollar Index (DXY) reflected this sentiment, hitting a fresh monthly low near 107.45.
While the Canadian dollar saw short-term gains against its U.S. counterpart, its outlook remains uncertain. Trump also reiterated plans to impose 25% tariffs on Canadian and Mexican imports by February 1, citing a 4% trade deficit with Canada as a key concern. These tariffs, if implemented, are expected to weigh on the Canadian economy, potentially prompting further policy easing by the Bank of Canada (BoC).
USD/CAD price dynamics (Aug 2024 - Jan 2025) Source: TradingView.
Market Focus on Canadian Rate Cuts
The BoC is widely anticipated to reduce its benchmark interest rate by 25 basis points to 3% at its meeting next Wednesday. Investors remain cautious as they assess the dual impact of Trump’s proposed tariffs and Canada’s monetary policy adjustments. Despite the current sell-off in USD/CAD, technical indicators suggest the pair’s long-term trajectory may remain upward.
The 50-day Exponential Moving Average (EMA) at 1.4248 supports a bullish outlook, while the Relative Strength Index (RSI) in the 40.00-60.00 range indicates a sideways trend. A break above the January 21 high of 1.4518 could propel the pair toward the key resistance at 1.4600 and the March 2020 high of 1.4668. On the downside, support lies at the December 11 low of 1.4120 and the psychological barrier of 1.4000.
Conclusion: Mixed Signals Shape USD/CAD Outlook
The USD/CAD pair faces near-term volatility as markets digest Trump’s calls for swift rate cuts and the looming tariff increases on Canada. Canadian CPI data and the BoC’s policy decision next week will play critical roles in determining the pair’s direction. Traders are advised to monitor global trade developments and Federal Reserve updates closely.
In our previous analysis, we highlighted USD/CAD’s pullback from its multi-year high, influenced by mixed signals from U.S. inflation trends and Canadian economic data. These factors remain critical as the market braces for further policy developments.
