Canadian Dollar Forecast: USD/CAD Breakout Looms on Trump Tariffs

Canadian Dollar Outlook: USD/CAD

USD/CAD still trades within the opening range for March as it bounces back ahead of the monthly low (1.4239), but the exchange rate may face increased volatility with the US on track to deploy reciprocal tariffs on April 2.

Canadian Dollar Forecast: USD/CAD Breakout Looms on Trump Tariffs

USD/CAD attempts to retrace the decline from the weekly high (1.4402) as Canada’s Retail Sales report shows a 0.6% decline in January versus forecasts for 0.4% contraction, and signs of a slowing economy may push the Bank of Canada (BoC) to further reduce interest rates as ‘the pervasive uncertainty created by continuously changing US tariff threats is restraining consumers’ spending intentions and businesses’ plans to hire and invest.’

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In turn, the Canadian Dollar may face headwinds ahead of the next BoC meeting on April 16 as the central bank acknowledges that ‘monetary policy cannot offset the impacts of a trade war,’ but it seems as though the Governing Council is in no rush to implement additional rate-cuts as Governor Tiff Macklem warns that ‘there can be no doubt about our commitment to low inflation.’

Until then, the ongoing transition in US trade policy may continue to sway USD/CAD as it clouds the outlook for the global economy, but the exchange rate may track the flattening slope in the 50-Day SMA (1.4344) should it continue to trade within the opening range for March.

With that said, USD/CAD may consolidate over the remainder of the month as it holds within the opening range for March, but failure to defend the price range may lead to a test of the February low (1.4151).

USD/CAD Price Chart – Daily

Chart Prepared by David Song, Senior Strategist; USD/CAD Price on TradingView

• USD/CAD may continue to trade within a defined range as it rebounds ahead of the monthly low (1.4239), and lack of momentum to break/close below the 1.4210 (78.6% Fibonacci extension) to 1.4270 (38.2% Fibonacci retracement) zone may push the exchange rate back towards the 1.4470 (23.6% Fibonacci retracement) to 1.4510 (23.6% Fibonacci extension) region.
• Nevertheless, the range bound price action may turn out to be temporary, with a close above the 1.4470 (23.6% Fibonacci retracement) to 1.4510 (23.6% Fibonacci extension) region bringing the 1.4600 (61.8% Fibonacci extension) to 1.4660 (38.2% Fibonacci extension) area on the radar.
• At the same time, a break/close below the 1.4210 (78.6% Fibonacci extension) to 1.4270 (38.2% Fibonacci retracement) zone may lead to test of the February low (1.4151), with the next area of interest coming in around 1.4110 (50% Fibonacci retracement).

Additional Market Outlooks

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AUD/USD Fails to Test February High Ahead of Fed Rate Decision

British Pound Forecast: GBP/USD Vulnerable to Dovish Bank of England (BoE)

--- Written by David Song, Senior Strategist

Follow on Twitter at @DavidJSong