Against the backdrop of rising global trade uncertainty and ongoing geopolitical tensions in the Middle East, monetary policies in both Canada and the U.S. are characterized by high caution and a wait-and-see approach—reflecting the complex global economic landscape where slowing growth coexists with inflationary pressures. In Canada, the BoC decided at its latest policy meeting to maintain the key overnight rate at 2.25%, extending its stance since October. This decision largely aligned with market expectations, but the underlying considerations have grown increasingly complex. Governor Macklem noted that the economy is currently in a state of "extreme and severe uncertainty," affected not only by shifts in U.S. trade policy but also by new shocks from the Middle East conflict (particularly involving Iran). These overlapping factors make future economic trends difficult to predict, with outcomes hinging on the duration of the conflict and whether it spreads further. Domestically, Canadian inflation has remained close to the 2% target for over a year, recently dipping to 1.8%, while core inflation remains broadly stable. However, rising international oil prices driven by Middle Eastern tensions pose short-term upside risks to inflation. Meanwhile, Canada's economic growth has been weak: after contracting in Q4 2025, it resumed growth in 2026 but lacks momentum and falls short of prior forecasts. The labor market has also weakened, with the unemployment rate climbing to 6.7%, employment growth slowing, and exports showing no clear improvement. This puts the BoC in a classic policy dilemma: raising rates to counter potential inflationary pressures could further dampen an already sluggish economy, while cutting rates to support growth might push inflation away from target. Notably, higher oil prices boost energy export revenues but erode household purchasing power, weighing on consumption. More critically, the Middle East conflict could disrupt supply chains—for example, blockages in the Strait of Hormuz affecting supplies of key goods like fertilizers—further increasing cost pressures. Additionally, tightening global financial conditions (rising bond yields, falling stock markets, and widening credit spreads) impose further constraints on the economy. Overall, Canada's economic outlook leans downward, while inflation risks tilt upward.  

In the U.S., inflationary pressures have also picked up. The Producer Price Index (PPI) rose 0.7% month-on-month in February, the largest increase in seven months, with the year-on-year rate climbing to 3.4%. This uptick was driven by both services and goods prices: service prices have maintained strong growth for several months, reflecting businesses passing on cost pressures downstream. On the goods side, food and energy prices saw notable increases, especially a sharp rise in vegetable prices and a rebound in energy costs, reinforcing the foundation for higher inflation. Meanwhile, Middle East tensions pushing up oil prices and lingering tariff effects add uncertainty to future inflation trends. Against this macro backdrop, the Federal Reserve (Fed) decided at its March meeting to keep the federal funds rate unchanged in the 3.50%-3.75% range, continuing to project just one 25-basis-point cut in 2026. This decision follows upward revisions to inflation expectations—the Fed now expects the PCE inflation rate to reach 2.7% by the end of 2026, significantly higher than previous forecasts. While U.S. economic resilience persists (with GDP growth slightly revised upward and the unemployment rate holding around 4.4%), employment growth momentum has weakened. Fed Chair Jerome Powell stated at the press conference that the current rate level is "appropriate," helping control inflation while maintaining labor market stability. He emphasized that Middle East tensions and higher energy prices will lift inflation in the short term, but their persistence and transmission scope remain highly uncertain—potentially dragging on consumption or being partially offset by gains in the energy sector. Overall, such shocks are more likely to be temporary, with inflation expected to gradually ease over the medium to long term. However, divisions within the Fed over the future policy path are widening: some officials favor no cuts, others support one cut, and a few anticipate more easing—even the first hints of longer-term rate hikes. These disagreements reflect the growing difficulty of policymaking amid sticky inflation and frequent external shocks.  

Based on the 4-hour chart, USD/CAD shows a narrowing Bollinger Band, with flat moving averages. After yesterday's sharp rally, the short-term uptrend holds. Prices oscillate upward along the EMA12 and the Bollinger Upper Band. Moreover, the MACD and signal lines are above the 0-axis but have formed a death cross, pulling back toward the 0-axis (still far from it), indicating the uptrend remains intact, but a pullback is possible. Resistance lies near the EMA800 and Bollinger Upper Band, at 1.376 and 1.34, respectively. RSI stands at 59, signaling a dominant buying sentiment. Regarding the daily chart, the Bollinger Bands are narrowing, while moving averages are flat. A golden cross emerges again, with the MACD and signal lines hovering near the 0-axis—weakening downward momentum, a sign of bullish divergence suggesting a potential rebound. Last Friday's large bullish candle breaking through the Bollinger Middle Band and EMA50 confirms another test of the EMA200 (around 1.38). RSI is at 56, reflecting cautious market sentiment, with lows gradually rising. Thus, it is recommended to buy at lows.

Trading direction: Buy

Entry Price: 1.37

Target Price: 1.4

Stop Loss: 1.35

Support: 1.35/1.325/1.28

Resistance: 1.38/1.4/1.42