USD/CAD Price Forecast: 200-day SMA breakdown in play ahead of Canadian CPI

The USD/CAD pair attracts fresh sellers following an intraday uptick to levels beyond the 1.3900 mark on Tuesday and remains close to its lowest level since November 2024 touched the previous day. The US Dollar (USD) languishes near a three-year low touched last week amid concerns that the rapidly escalating US-China trade war would undermine the US economy and turns out to be a key factor weighing on the currency pair. In fact, China increased its tariffs on US imports to 125% in retaliation to US President Donald Trump's decision to raise duties on Chinese goods to an unprecedented 145%.

Given that the US still imports several hard-to-replace materials from China, the development weakens confidence in the US economy and keeps the USD bulls on the defensive. Furthermore, the prospects for more aggressive policy easing by the Federal Reserve (Fed) and a generally positive risk tone fail to assist the safe-haven Greenback in registering any meaningful recovery. Market participants now seem convinced that the US central bank will resume its rate-cutting cycle soon and lower borrowing costs at least three times by the end of this year amid worries about a tariffs-driven US economic slowdown.

Meanwhile, the global risk sentiment improved after the White House announced on Friday that smartphones, computers, and other electronics would be temporarily exempted from Trump’s punishing reciprocal tariffs. Adding to this Trump said on Monday that he was looking into possible exemptions for the auto industry from the 25% tariffs as companies need more time for transition to US-made parts. This remains supportive of a generally positive tone around the equity markets, which further undermines the buck and contributes to the mildly offered tone surrounding the USD/CAD pair.

Trump, however, said that exemptions were temporary and added that he would unveil tariffs on imported semiconductors over the next week. Trump also threatened that he would impose tariffs on pharmaceuticals in the not-too-distant future. This, in turn, keeps a lid on the market optimism. Apart from this, the lack of any meaningful buying around Crude Oil prices could act as a headwind for the commodity-linked Loonie and help limit losses for the USD/CAD pair. Investors might also opt to wait for the release of the latest consumer inflation figures from Canada before placing fresh directional bets.

Tuesday's economic docket also features the Empire State Manufacturing Index from the US, which, along with trade-related developments and the broader risk sentiment, will drive the USD demand. Apart from this, Oil price dynamics might provide some impetus to the USD/CAD pair and assist traders in grabbing short-term opportunities. This week's key focus, however, will be Fed Chair Jerome Powell's appearance on Wednesday. Investors will look for cues about the Fed's future interest rate-cut path, which should play a key role in determining the near-term trajectory for the USD and the currency pair.

USD/CAD daily chart

Technical Outlook

From a technical perspective, last week's breakdown below the very important 200-day Simple Moving Average (SMA), around the 1.4000 psychological mark, was seen as a key trigger for bearish traders. However, the daily Relative Strength Index (RSI) is flashing slightly oversold conditions. This makes it prudent to wait for some near-term consolidation or a modest bounce before positioning for any further depreciating move.

In the meantime, the 1.3830-1.3825 area, or the year-to-date low touched on Monday, could offer some support to the USD/CAD pair ahead of the 1.3800 mark. A convincing break below the latter will reaffirm the negative bias and pave the way for an extension of the downtrend from a multi-year peak touched in February. Spot prices might then slide to the 1.3755-1.3750 region en route to the 1.3700 mark and the 1.3650 region.

On the flip side, a sustained strength beyond the 1.3900 mark could trigger a short-covering rally and lift the USD/CAD pair back towards the 200-day SMA breakpoint, around the 1.4000 round figure. The latter should act as a pivotal point, which if cleared decisively would suggest that spot prices have formed a near-term bottom and set the stage for a further recovery towards the 1.4055-1.4060 area en route to the 1.4100 mark.