Canada's Trade Surplus Hits a Four-Year High, Strengthening the Loonie While the Pair Remains Bearish Medium Term

Summary:

Canada's merchandise trade surplus rose to its highest level in four years in May, supported by stronger exports to the United States, providing fundamental support for the Canadian dollar. Meanwhile, the rebound in USD/CAD is losing momentum, and the pair remains vulnerable to further downside as long as the broader downtrend remains intact.

SELL USDCAD

EXP

TRADING

1.41777

Entry Price

1.36350

1.45600

1.41743 +0.00018 +0.01%

0.0

Pips

Flat

1.36350

Exit Price

1.41777

Entry Price

1.45600

Fundamentals

Canada's latest economic data continue to paint a constructive picture. Merchandise trade surplus widened to CAD 4.24 billion in May from a revised CAD 3.41 billion in April, marking the highest level in nearly four years and the fourth consecutive monthly increase, highlighting the ongoing improvement in the country's external trade.

Exports to the United States rose 1.5% to CAD 53.72 billion, the strongest level since February 2025, accounting for nearly 70% of Canada's total exports. Meanwhile, imports from the U.S. declined 1.4%, expanding Canada's bilateral trade surplus with its largest trading partner from CAD 10.3 billion to CAD 11.6 billion, underscoring improving export competitiveness.

The increase in exports was primarily driven by shipments of metal ores and non-metallic minerals, which surged 16.1% month-on-month. A significant rise in sulfur exports played a key role, as previous disruptions to shipments through the Strait of Hormuz reshaped global sulfur supply chains, benefiting Canadian exporters.

Stronger trade performance implies increased foreign capital inflows into Canada, providing direct support for the Canadian dollar. Coupled with relatively stable energy prices, the loonie's fundamental outlook has improved further. If U.S. economic momentum continues to soften while expectations for Federal Reserve rate cuts regain traction and Canada's economy remains resilient, USD/CAD is likely to maintain its medium-term downward trajectory.

Canada's Trade Surplus Hits a Four-Year High, Strengthening the Loonie While the Pair Remains Bearish Medium Term_1

Technical Analysis

USD/CAD remains capped below the key resistance level at 1.4248, with bullish momentum fading noticeably. Following an extended rally from recent lows, the technical recovery appears largely complete, while upside momentum is showing signs of exhaustion.

On the daily chart, the pair continues to trade within a long-term downtrend characterized by a sequence of lower highs, indicating that the broader bearish structure remains intact. Failure to break decisively above 1.4248 would likely see the pair retest support around 1.4150. A break below that level could expose further downside toward 1.4023 and potentially 1.3870.

Momentum indicators are beginning to weaken on shorter timeframes, while medium- and long-term moving averages remain bearishly aligned. This suggests that the recent rebound is more likely a corrective rally within a broader downtrend rather than the start of a new bullish cycle. Until a confirmed trend reversal emerges, selling into strength remains the preferred trading strategy.

Trading Recommendation

Trade Direction: Sell

Entry Price: 1.4200

Target Price: 1.3635

Stop Loss: 1.4560

Valid Until: 2026-08-07 23:55

Support: 1.4150, 1.4023, 1.3870

Resistance: 1.4248, 1.4296, 1.4413

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