USD/CAD Price Forecast: Bulls retain control amid Trump’s tariffs; trading range breakout in play

The USD/CAD pair builds on Friday's breakout momentum through the 1.4500 psychological mark and attracts strong follow-through buyers at the start of a new week. The launch of US President Donald Trump's new tariffs lift the US Dollar (USD) back closer to over a two-year top and spot prices to the 1.4800 neighborhood, or the highest level since April 2003 during the Asian session. 

In fact, Trump on Saturday ordered 25% tariffs on Canadian and Mexican imports and 10% on goods from China starting on Tuesday and said that they would remain in place until the countries stem the flow of illegal drugs and immigrants into the US. In response, Canadian Prime Minister Justin Trudeau announced 25% retaliatory tariffs against Canadian $155 billion worth of American goods. This, in turn, raised concerns about a global trade war and tempers investors' appetite for riskier assets. The anti-risk flow is evident from a sea of red across the equity markets, which benefits the safe-haven buck and provides a strong boost to the USD/CAD pair. 

The Canadian Dollar (CAD) is further weighed down by the Bank of Canada's (BoC) dovish move last week, to cut interest rates for the sixth time in a row since June and end its quantitative tightening program. This marks a big divergence in comparison to the Federal Reserve's (Fed) hawkish pause, which favors the USD bulls and suggests that the path of least resistance for the USD/CAD pair remains to the upside. The markets, however, are still pricing in the possibility that the Fed will lower borrowing costs twice this year. This, along with the global flight to safety, triggers a sharp intraday decline in the US Treasury bond yields and caps the USD gains. 

Furthermore, fears that Trump's new trade tariffs could disrupt supply from the two biggest supplies to the US boost Crude Oil prices. This, in turn, offers some support to the commodity-linked Loonie and keeps a lid on the USD/CAD pair. That said, the anticipated domino effect from Trump's policies on global economic growth and the prospect of lower fuel demand could fail to assist the black liquid to capitalize on its modest recovery from a one-month low. Moreover, the aforementioned fundamental backdrop seems tilted firmly in favor of the USD bulls and suggests that the path of least resistance for spot prices remains to the upside. 

Hence, any meaningful corrective slide could be seen as a buying opportunity and remain limited. Traders look forward to this week's important US macro releases scheduled at the beginning of a new month, starting with the ISM Manufacturing PMI later during the North American session on Monday. The focus, however, will remain glued to the US monthly employment details – popularly known as the Nonfarm Payrolls (NFP) report on Friday. The latter will be accompanied by the release of the Canadian jobs data, which, along with Oil price dynamics, will play a key role in determining the next leg of a directional move for the USD/CAD pair.

USD/CAD daily chart

Technical Outlook

From a technical perspective, the intraday pullback around 100 pips could be attributed to some profit-taking amid a slightly overbought Relative Strength Index (RSI) on the daily chart. That said, last week’s breakout through a short-term trading range favors bullish traders and supports prospects for the emergence of some dip-buying at lower levels. Hence, any further decline is likely to find decent support near the 1.4600 round figure ahead of the 1.4500 psychological mark. The latter should act as a strong base and a key pivotal point, which if broken decisively will suggest that the USD/CAD pair has topped out and pave the way for a deeper corrective decline. 

On the flip side, the 1.4700 round figure, followed by the 1.4750 area now seems to act as immediate hurdles ahead of the 1.4800 neighborhood or the the multi-decade high touched during the Asian session. A sustained strength above the latter will reaffirm the near-term constructive outlook and allow the USD/CAD pair to prolong a well-established uptrend witnessed from the September 2024 swing low.