Tariff Tensions Drive CAD Under Pressure with Volatility as Main Theme

Summary:

The divergence in US-Canada monetary policies and the impact of tariffs have weighed on the CAD, with significant short-term support for USDCAD.

BUY USDCAD

Close Time

CLOSED

1.43949

Entry Price

1.45000

1.42800

1.38384 +0.00033 +0.02%

37.9

Pips

Profit

1.42800

1.44328

Exit Price

1.43949

Entry Price

1.45000

Fundamentals

On March 12, the Trump administration threatened to impose a 50% tariff on Canadian steel and aluminum products and warned of an increase in automobile tariffs to 25% by April 2. In retaliation, Canada announced a 25% retaliatory tariff on US$29.8 billion worth of US goods, covering agricultural and industrial products. The trade friction has led to short-term pressure on the CAD.

Meanwhile, the Bank of Canada cut interest rates by 25 basis points on March 12. Governor Tiff Macklem stated that "monetary policy cannot fully offset the impact of the trade war." Market concerns have risen that if US-Canada negotiations break down, the central bank may further ease its policy. The US February non-farm payroll data was robust, but a weak CPI has led the market to bet on a 125-basis-point rate cut within the year. The US dollar index has retreated from its highs to below 104, but protectionist policies may fuel imported inflation, limiting the downside for the dollar. The divergence in monetary policies and the impact of tariffs have severely weakened the CAD.

Technical Analysis

Tariff Tensions Drive CAD Under Pressure with Volatility as Main Theme_1

From the 4-hour chart, USDCAD surged and then retreated around the Bank of Canada's decision, failing to effectively break through 1.45, indicating that this level remains a strong resistance. In the short term, prices have stabilized around 1.436 after a pullback, with the overall trend still upward and showing signs of an upward turn. Traders can maintain a volatile trading strategy in the short term, waiting for a break above 1.45 to open up further upside space. Additionally, if the US PPI data released within the day reinforces inflation stickiness, it may briefly boost USDCAD.

Traders are advised to go long with a light position when USDCAD pulls back to around 1.436. The target is set around 1.45 and the stop-loss should below 1.43.

Trading Recommendations

Trading Direction: Buy

Entry Price: 1.436

Target Price: 1.450

Stop Loss: 1.428

Support: 1.436/1.430

Resistance: 1.450/1.453

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