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USD/CAD has been on a grind higher since May 6 and has now returned to the key psychological level 1.4000 level. Volatility has subsided somewhat of late as trade deals and a rebound in overall market sentiment has led to calmer markets as a whole.
May has been a rough month thus far for the Canadian dollar. Prime Minister Mark Carney’s visit to meet Trump didn’t show any signs of easing US-Canada tensions. Renegotiating the USMCA trade deal looks like it’ll take longer than other international trade agreements for both countries. This has come at a time where the US Dollar has shown signs of a recovery but there are still headwinds for the greenback moving forward.
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Is the US Dollar set for more pain?
The US Dollar rise of late has been welcomed by markets but there is growing concern over the sustainability of the Dollar’s strength. Earlier today there was a report stating that the US is not seeking to weaken the Dollar through trade deals, citing an unnamed source.
According to a person familiar with the situation, US officials negotiating trade deals around the world are not attempting to include currency policy pledges in the agreements.
Foreign exchange markets are on edge due to concerns. President Donald Trump’s administration wants a weaker dollar and may use trade negotiations to achieve that goal. On Wednesday, the South Korean won rose nearly 2% against the dollar, while the Japanese yen also gained. Earlier this month, Taiwan’s currency experienced its biggest increase in decades.
An ING Think report today painted a picture of concern for the Greenback. The report may be on to something, citing the recent 90-day pause between the US-China as a pragmatic approach but one which is unlikely to wipe away the scars of a topsy-turvy month of April.
There had been a noticeable shift in April away from the Greenback as asset managers sought more diversification when it comes to FX reserves given the volatility and lack of safe haven appeal of the Dollar.
ING states that the lag effects of this pivot are yet to be felt which may be true to some extent at least. Further adding to this, ING cites the upcoming unfunded tax cuts making its way through Congress as another factor which could weigh on the Dollar moving forward.
All in all the US Dollar picture remains uncertain to say the least.
Bank of Canada (BoC) to Cut Rates Again?
The Bank of Canada faces an interesting few months ahead as data continues to deteriorate. When it comes to monetary policy, the Fed and BoC are both expected to cut rates in the coming months. However, at present it does appear that the BoC may beat the Fed to cut rates first.
This could be something else that is weighing on the CAD of late and could come into play in the weeks ahead.
Economic Data Ahead
Looking ahead, the calendar is light this week in terms of Canadian data. There is however a host of US data releases and Fed speakers scheduled to speak before the week comes to a close.
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For all market-moving economic releases and events, see the MarketPulse Economic Calendar.
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Technical Analysis – USD/CAD
From a technical standpoint, USD/CAD has rejected of the psychological 1.4000 level on both Monday and Tuesday.
Tuesdays daily candle closed as a shooting star on the daily timeframe which hinted at further downside.
However yesterdays daily candle closed as a hammer off support at 1.3900 hinting at further upside.
If USD/CAD can clear the 1.4000 handle the top of the descending channel may come into focus around the 1.4100 handle.
If price fails to make a convincing move above the 1.4000 a retest of the 1.3900 support may come into focus. Below that support may be found at 1.3854 and 1.3747.
USD/CAD Daily Chart, May 14, 2025
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Source: TradingView (click to enlarge)
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