USD/CAD Breaks Higher, Eyes Key Resistance Following Fed's Policy Announcement

Economic

Summary:

USD/CAD sees significant gains, rising to nearly 1.4370 as the U.S. Federal Reserve signals no rush to cut interest rates.

BUY USDCAD

Close Time

CLOSED

1.43796

Entry Price

1.45000

1.43000

1.38151 +0.00004 +0.00%

79.6

Pips

Loss

1.43000

Exit Price

1.43796

Entry Price

1.45000

The USD/CAD pair surged to near 1.4370 in European trading hours on Thursday, continuing its climb as the U.S. Dollar strengthened in the wake of the Federal Reserve’s recent monetary policy decision. The move higher came amid investor sentiment favoring the U.S. Dollar, with the Federal Reserve's decision to leave interest rates steady and maintain its forecast for future rate cuts providing further tailwinds for the Greenback. Meanwhile, the Canadian Dollar (CAD) struggled to maintain momentum, weighed down by expectations that the Bank of Canada (BoC) will soon follow the Fed’s dovish tone with its own rate cuts.

The USD/CAD’s sharp ascent reflects a broader strengthening of the U.S. Dollar. The U.S. Dollar Index (DXY), which tracks the performance of the Greenback against a basket of six major currencies, jumped to nearly 104.00 following the Fed’s decision. The central bank’s stance, signaling no immediate need to cut rates despite persistent economic uncertainties, bolstered confidence in the USD as a safe-haven asset.

On Wednesday, the Federal Reserve opted to keep interest rates unchanged in the range of 4.25%-4.50%, reiterating its forecast of two interest rate cuts later this year. This dovish guidance signals that the Fed is in no rush to adjust its policy stance, even as uncertainty surrounding President Donald Trump’s economic policies continues to loom large. Fed Chair Jerome Powell warned in a press conference that Trump’s tariff policies are likely to have an adverse impact on U.S. economic growth, while simultaneously fueling inflationary pressures. As a result, the Fed revised its core Personal Consumption Expenditure Price Index (PCE) forecast for 2025 to 2.8%, up from the previously projected 2.5%. Additionally, the Fed lowered its GDP growth forecast for the year to 1.7%, down from 2.1% previously, citing concerns about the impact of trade policies on global economic growth.

Trump’s looming tariff policies are a significant factor driving uncertainty in both the U.S. and global economies. The president is expected to introduce reciprocal tariffs on April 2, a move that analysts predict will slow global economic growth, especially in light of rising trade tensions between the U.S. and key trading partners. This potential trade war weighs on global market sentiment, contributing to the strength of the U.S. Dollar while simultaneously dampening investor confidence in riskier assets, including the Canadian Dollar.

The Canadian Dollar has seen some strength against other global currencies, but its performance against the U.S. Dollar remains under pressure. Despite the CAD’s relative strength against other peers, the Loonie faces growing headwinds from expectations that the Bank of Canada will soon lower interest rates to support economic growth. Analysts at Bank of America (BoA) predict that the BoC will cut rates by 25 basis points (bps) to 2.50% during its upcoming policy meeting in April, marking the second consecutive rate cut after the BoC's earlier reductions this year. The BoC’s decision will be influenced by a range of factors, including the potential impact of U.S. reciprocal tariffs on the Canadian economy and March’s Consumer Price Index (CPI) data, which will provide further insight into inflation trends.

Despite the possibility of BoC rate cuts, the Canadian Dollar has managed to hold up against its peers. The BoC’s rate cut expectations, however, underscore concerns about Canadian economic growth amid ongoing uncertainty surrounding global trade. The USD/CAD pair’s recent rise signals that traders are positioning for further USD strength as the Fed’s cautious approach contrasts with the BoC’s likely dovish policy stance.

The outlook for the Canadian Dollar remains clouded by uncertainty over the direction of U.S. trade policies. President Trump’s trade tariffs, coupled with rising inflationary pressures in the U.S., are poised to weigh on global economic growth, leading to concerns about the export-driven Canadian economy. A slowdown in global demand for Canadian goods could further exacerbate the CAD’s weakness, particularly if U.S. tariffs continue to restrict Canadian exports.

Moreover, the divergence in monetary policy between the U.S. and Canada is likely to keep pressure on the CAD. While the Federal Reserve has signaled its intention to cut rates later this year, the Bank of Canada’s more cautious approach to monetary easing could widen the interest rate differential between the two currencies, further supporting the USD against the Loonie.

Technical Analysis

From a technical perspective, the USD/CAD pair has re-entered its 4-hour range following the recent rally. The pair’s current price action suggests a bullish bias, with a potential test of the bearish trendline near the 1.4400 level. Traders looking to capitalize on the upward momentum may consider initiating buy positions around the lower zone of the range, near 1.4275, targeting a move toward 1.4400. If the bearish trendline at this level is broken, the next potential resistance could be found at 1.4500, the upper boundary of the range.

Conversely, a bearish break below 1.4250 would invalidate the current bullish scenario, suggesting that the range could break to the downside and lead to further weakness in the USD/CAD pair. Traders will need to monitor key levels closely to assess whether the current upward momentum can be sustained or if the pair will reverse course.

TRADE RECOMMENDATION

BUY USDCAD

ENTRY PRICE: 1.4380

STOP LOSS: 1.4300

TAKE PROFIT: 1.4500

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Risk Disclosure

The risk of loss in trading financial instruments such as stocks, FX, commodities, futures, bonds, ETFs and crypto can be substantial. You may sustain a total loss of the funds that you deposit with your broker. Therefore, you should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources.

No decision to invest should be made without thoroughly conducting due diligence by yourself or consulting with your financial advisors. Our web content might not suit you since we don't know your financial conditions and investment needs. Our financial information might have latency or contain inaccuracy, so you should be fully responsible for any of your trading and investment decisions. The company will not be responsible for your capital loss.

Without getting permission from the website, you are not allowed to copy the website's graphics, texts, or trademarks. Intellectual property rights in the content or data incorporated into this website belong to its providers and exchange merchants.