- USD/CAD rallies to its highest level since April 2020 in reaction to Trump’s tariff threats.
- The overnight fall in Crude Oil prices undermines the Loonie and further boosts the pair.
- Rising US bond yields revive the USD demand and favor bulls ahead of FOMC minutes.
The USD/CAD pair catches aggressive bids and spikes to the 1.4175-1.4180 region on Tuesday in reaction to US President-elect Donald Trump's tariff threats. In a post on Truth Social, Trump pledged to impose a 25% tariff on all products coming into the US from Mexico and Canada, and an additional 10% tariff on goods from China. Such a move would end a regional free trade agreement and trigger trade wars, which, in turn, weigh heavily on the Canadian Dollar (CAD).
Meanwhile, reports that Israel and the Lebanon-based Hezbollah militant group are on the cusp of a ceasefire deal led to the overnight decline in Crude Oil prices. This overshadows the optimism over reduced bets for a bigger rate cut by the Bank of Canada (BoC) in December and turns out to be another factor undermining the commodity-linked Loonie. Apart from this, the emergence of some US Dollar (USD) buying provides an additional boost to the USD/CAD pair.
Scott Bessent's nomination as the US Treasury secretary provided a short-lived respite to US bond investors amid expectations for a less dovish Federal Reserve (Fed). In fact, market players now seem convinced that US President-elect Donald Trump’s expansionary policies will reignite inflation and force the Fed to cut interest rates slowly. This, in turn, triggers a fresh leg up in the US Treasury bond yields and assists the USD to fill Monday's bearish weekly gains.
That said, the underlying bullish sentiment across the global financial markets holds back traders from placing aggressive bullish bets around the safe-haven buck. Furthermore, a modest uptick in Oil prices helps limit losses for the Canadian Dollar (CAD) and prompts some intraday profit-taking around the USD/CAD pair. Investors now look to the FOMC minutes for cues about the future rate-cut path, which will drive the USD and provide meaningful impetus.
Tuesday's US economic docket also features the release of the Conference Board's Consumer Confidence Index, New Home Sales data and the Richmond Manufacturing Index. The focus will then shift to the release of the revised US Q3 GDP print on Wednesday and the US Personal Consumption Expenditure (PCE) Price Index on Friday. The crucial data will play a key role in influencing the USD price dynamics and determining the near-term trajectory for the USD/CAD pair.
Technical Outlook
From a technical perspective, an intraday breakout and acceptance above the 1.4100 mark favors bullish traders. Moreover, oscillators on the daily chart are holding comfortably in positive territory and suggest that the path of least resistance for the USD/CAD pair is to the upside. Hence, any further pullback might still be seen as a buying opportunity and remain limited near the 1.4055 area, which should now act as a strong near-term base.
On the flip side, the multi-year peak, around the 1.4175-1.4180 region, now seems to act as an immediate hurdle. Some follow-through buying, leading to a subsequent strength beyond the 1.4200 mark, will be seen as a fresh trigger for bullish trades. The USD/CAD pair might then aim to test the April 2020 swing high, around the 1.4300 mark, with some intermediate hurdle near the 1.4265 region.
USD/CAD daily chart
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