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USD/CAD Rises as Canada Faces Economic Headwinds, Trade Tensions with US
Summary:
USD/CAD approaches 1.3900 as the Canadian Dollar weakens ahead of the BoC’s Financial System Review and Trump’s US-UK trade deal announcement, with technicals suggesting further upside potential.
PENDING
1.38700
ENTRY
1.41500
TGT
1.37400
SL
1.39346 +0.00123 +0.09%
--
Point
PENDING
1.37400
SL
CLOSING
1.38700
ENTRY
1.41500
TGT
The Canadian Dollar finds itself under pressure once again, with the USD/CAD pair climbing steadily toward the psychologically significant 1.3900 threshold in Thursday trading. As of the latest quotes, the pair is hovering around 1.3880, up 0.34% on the day, extending a week-long trend of Loonie weakness amid a complex mix of macroeconomic fragilities and geopolitical tension.
Today’s price action reflects cautious sentiment ahead of two critical catalysts set to unfold at 14:00 GMT: the Bank of Canada’s semi-annual Financial System Review (FSR) and a speech by former US President Donald Trump, who is expected to unveil the framework of a new US-UK trade deal. Each carries weight in its own right, but their simultaneous timing places extraordinary focus on North American financial stability and the evolving architecture of global trade.
Though not a policy-setting instrument per se, the Financial System Review is increasingly seen as a bellwether for market risk. It dissects vulnerabilities embedded within the Canadian economy—ranging from high household debt levels and elevated housing prices to credit quality deterioration across key segments.
With Canada’s economy already showing signs of deceleration—April’s GDP growth missed estimates while inflation appears to be moderating—any warnings from the BoC about tightening financial conditions could raise red flags for the Canadian Dollar. Analysts expect the central bank to strike a cautiously concerned tone, especially with financial institutions facing liquidity pressures and consumer debt ratios hovering near historical highs.
Governor Tiff Macklem is set to address the press following the report’s release, and markets will parse his language for any clues about the future path of monetary policy. Though rate changes aren’t anticipated in the near term, any suggestion that the BoC may need to reinforce financial buffers could lead to risk-off sentiment and additional Loonie weakness.
Meanwhile, on the geopolitical front, Trump’s expected announcement of a new US–UK trade deal is drawing global attention—not merely for its bilateral significance but for what it symbolizes. This marks the first major trade initiative since the so-called "Liberation Day," and the deal could signal a broader move toward bilateralism, departing from the multilateral norms that have long underpinned the global trading order.
Investors are watching for structural details: Will the deal include favorable terms for US energy and agricultural exports? Could it open transatlantic supply chains for industrial inputs that benefit Canadian exporters? If the UK deal becomes a blueprint, it could indirectly benefit North American producers—particularly if it simplifies logistics and boosts demand for intermediate goods.
However, this positive potential is being tempered by escalating trade rhetoric closer to home. Tensions flared earlier this week when Canadian Prime Minister Mark Carney met with Trump in Washington. Though described as “cordial but firm,” the meeting exposed deep divisions. Trump’s offhand remark that Canada “could become the 51st state” drew a sharp rebuke from Carney: “Canada is not for sale, it won’t be for sale, ever.”
More significantly, discussions also touched on the USMCA trade pact. Trump hinted at possible retaliatory tariffs if Canada fails to fully comply with sector-specific provisions, suggesting that the US is prepared to act unilaterally. “Non-compliance will not go unanswered,” Trump declared. This hardline stance has reignited concerns about tariffs on Canadian metals, timber, and agricultural products, all of which could weigh heavily on the CAD if tensions escalate further.
Technical Analysis
From a technical perspective, USD/CAD is exhibiting strong bullish momentum. The pair recently broke out of a falling wedge pattern—a formation traditionally seen as a bullish reversal signal—and has comfortably surpassed its 50-day Exponential Moving Average (EMA50), removing a layer of downward pressure that had previously capped gains.
The current move appears to be a retest of the broken structure, and should this breakout hold, analysts see room for further upside, with potential targets extending toward the 1.4150 mark. This would represent the highest level since late 2022 and would cement the greenback’s dominance in the pair.
Intraday price action also supports this thesis. The pair’s recent consolidation around the 1.3870–1.3880 area appears to be a healthy pause rather than exhaustion. Momentum indicators like RSI and MACD are still showing room for continuation, and barring a dovish surprise from the BoC or a conciliatory tone from Trump, the path of least resistance remains to the upside.
TRADE RECOMMENDATION
BUY USDCAD
ENTRY PRICE: 1.3870
STOP LOSS: 1.3740
TAKE PROFIT: 1.4150
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Warren Takunda, a seasoned finance leader specializing in the Middle East, is a trusted senior analyst with a proven track record. As head of the finance team, he excels in financial planning, analysis, and reporting. Warren's expertise in financial modeling and investment analysis delivers valuable insights to clients.
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