Tariffs of Trump threats send USDCAD to 4-year high

The USDCAD currency pair showed a sharp growth momentum at yesterday's trading session. Quotes rose above the 1.417 mark for the first time since the spring of 2020. And although most of the gains were eventually lost, today traders once again prefer to buy USDCAD against the Canadian dollar. Given the recent news, USDCAD's uptrend is gaining more and more fundamental support, while the bears have to be content with only localized corrections.

Contrary to expectations of market participants, Donald Trump after his victory in the presidential election quite quickly returned to the topic of tariffs on imported goods. Earlier this week, he announced plans to enact 25% tariffs on all products imported into the country from Canada and Mexico as early as January 20. The very fact of raising duties did not come as a surprise to analysts, but the extremely short time for their realization clearly took many investors by surprise.

Royce Mendes of Desjardins remains skeptical about the possibility of imposing such high tariffs on Canadian exports to the United States. In his opinion, the final parameters of Trump's decree will not be so severe, but in any case, the negative impact on Canada's business climate has already begun to spread. The national economy again needs support from the Bank of Canada, which should reduce the key rate by at least 0.25% on December 11.

Sarah Ying, chief currency strategist at CIBC Capital Markets, presented a gloomy forecast of USDCAD dynamics in an interview with Bloomberg. According to her estimates, quotes may soon test the 2020 maximum, located above the 1.466 mark. Skylar Montgomery Koning from Barclays went even further and stated about devaluation of the Canadian dollar by at least 8% with import tariffs of 10%. If tariffs really amount to 25%, the U.S. and Canadian currency ratio risks heading for a 2002 peak of 1.62.

Last week's correction helped the Stochastic indicator to relieve its overbought condition, and now it is again pointing to USDCAD growth. The price may gradually return to 1.415.

Consider the following trading strategy:

Buy USDCAD at the current price. Take profit – 1.415. Stop loss – 1.398.