USD/CAD maintains bullish trend amid uncertainty in US-Canada trade talks
2025-10-16 20:24:55
USD/CAD held near its opening level on Thursday (October 16), stabilizing after retreating from a six-month high of 1.4079. USD/CAD was trading at 1.4054, up 0.10%, bringing its monthly gain to 0.90%.
Complex trade situation
The Canadian dollar's weakness stems primarily from uncertainty surrounding US-Canada trade negotiations, particularly regarding the prospects for sectoral agreements in the automotive and energy sectors, which have led to investor caution. Low oil prices (WTI around $58 per barrel) are further dampening Canada's export-oriented economy and exacerbating depreciation pressure on the Canadian dollar.
This dynamic reinforces the relative strength of the U.S. dollar and may limit the rebound of the Canadian dollar in the short term.
Escalating tensions between China and the United States have fueled investor concerns, weighing on the US dollar overall. However, the continued decline in crude oil prices, Canada's primary export, has limited the upside for Canadian dollar bulls, preventing the Canadian dollar from appreciating on the back of a weaker US dollar.
Bank of Canada policy and interest rate cut expectations
Bank of Canada (BoC) Governor Tiff Macklem will deliver a speech today. The market expects him to reiterate the economic outlook and the probability of a rate cut at the policy meeting on October 29 is about 60%.
The Bank of Canada has already cut interest rates by 175 basis points this year, with markets pricing in a further cut to 2.75% in 2025, reflecting growth concerns and the impact of trade frictions. This easing path diverges from the Federal Reserve's potentially hawkish signals and is expected to exacerbate Canadian dollar weakness, particularly amid political uncertainty, such as a no-confidence vote in late 2024 and the risk of the 2025 election. Overall, this factor supports an upward trend in USD/CAD.
Technical analysis: Downside correction within a bullish trend
(USD/CAD 4-hour chart source: Yihuitong)
The current pullback in the US dollar is seen as a correction following the upward trend that began last week at lows around 1.3930. The 4-hour relative strength index (RSI) is retreating from overbought territory, and the aforementioned support level of 1.4020 is currently holding back any further downside attempts.
If the exchange rate falls further below the 1.4020 support level, it will test the rising trend line support at 1.4000. Further down, the low of October 10 is 1.3980, while the key support level is located between the lows of October 8 and 9, that is, between 1.3930 and 1.3940.
On the other hand, if the exchange rate attempts to rise, it will likely encounter resistance around 1.4060 (Wednesday's high) and 1.4080 (October 14 high). If it can successfully break through these resistance levels, the next focus will be on the 161.8% Fibonacci extension level of the late September rally, which is located around 1.4145.
The pair recently broke through the psychologically important 1.40 level, putting significant pressure on the Canadian dollar. It's worth noting that the USD/CAD daily chart formed a shooting star candlestick pattern last Tuesday, indicating resistance after the breakout, hindering further upward movement. However, this pullback is expected to provide a buying opportunity for the US dollar, as it continues to strengthen not only against the Canadian dollar but also against other currency pairs. USD/CAD is expected to eventually rise to 1.42. However, reaching this target quickly in the short term is unlikely unless there are significant economic data or events that cause market disruptions.
Overall, the overall trend of the US dollar is bullish, especially for the Canadian dollar.
Complex trade situation
The Canadian dollar's weakness stems primarily from uncertainty surrounding US-Canada trade negotiations, particularly regarding the prospects for sectoral agreements in the automotive and energy sectors, which have led to investor caution. Low oil prices (WTI around $58 per barrel) are further dampening Canada's export-oriented economy and exacerbating depreciation pressure on the Canadian dollar.
This dynamic reinforces the relative strength of the U.S. dollar and may limit the rebound of the Canadian dollar in the short term.
Escalating tensions between China and the United States have fueled investor concerns, weighing on the US dollar overall. However, the continued decline in crude oil prices, Canada's primary export, has limited the upside for Canadian dollar bulls, preventing the Canadian dollar from appreciating on the back of a weaker US dollar.
Bank of Canada policy and interest rate cut expectations
Bank of Canada (BoC) Governor Tiff Macklem will deliver a speech today. The market expects him to reiterate the economic outlook and the probability of a rate cut at the policy meeting on October 29 is about 60%.
The Bank of Canada has already cut interest rates by 175 basis points this year, with markets pricing in a further cut to 2.75% in 2025, reflecting growth concerns and the impact of trade frictions. This easing path diverges from the Federal Reserve's potentially hawkish signals and is expected to exacerbate Canadian dollar weakness, particularly amid political uncertainty, such as a no-confidence vote in late 2024 and the risk of the 2025 election. Overall, this factor supports an upward trend in USD/CAD.
Technical analysis: Downside correction within a bullish trend
(USD/CAD 4-hour chart source: Yihuitong)
The current pullback in the US dollar is seen as a correction following the upward trend that began last week at lows around 1.3930. The 4-hour relative strength index (RSI) is retreating from overbought territory, and the aforementioned support level of 1.4020 is currently holding back any further downside attempts.
If the exchange rate falls further below the 1.4020 support level, it will test the rising trend line support at 1.4000. Further down, the low of October 10 is 1.3980, while the key support level is located between the lows of October 8 and 9, that is, between 1.3930 and 1.3940.
On the other hand, if the exchange rate attempts to rise, it will likely encounter resistance around 1.4060 (Wednesday's high) and 1.4080 (October 14 high). If it can successfully break through these resistance levels, the next focus will be on the 161.8% Fibonacci extension level of the late September rally, which is located around 1.4145.
The pair recently broke through the psychologically important 1.40 level, putting significant pressure on the Canadian dollar. It's worth noting that the USD/CAD daily chart formed a shooting star candlestick pattern last Tuesday, indicating resistance after the breakout, hindering further upward movement. However, this pullback is expected to provide a buying opportunity for the US dollar, as it continues to strengthen not only against the Canadian dollar but also against other currency pairs. USD/CAD is expected to eventually rise to 1.42. However, reaching this target quickly in the short term is unlikely unless there are significant economic data or events that cause market disruptions.
Overall, the overall trend of the US dollar is bullish, especially for the Canadian dollar.
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- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
