Trade tensions and oil weakness boost USDCAD upside potential

The USDCAD currency pair started the week on an upward trend but reversed course on Wednesday, April 9, following President Trump's announcement of new 104% tariffs on Chinese imports. This move escalated trade tensions between the US and China, putting downward pressure on the US dollar. Increasing trade barriers now threaten global economic growth and are undermining confidence in the USD, despite its traditional role as a safe-haven asset.

The Canadian dollar, on the contrary, found temporary support as it was exempt from the new US tariffs under the USMCA agreement. However, the currency is now facing headwinds as oil prices collapse, with both Brent and WTI crude plunging to four-year lows—levels not seen since March and February 2021, respectively. This poses a major challenge for Canada, given its heavy reliance on oil exports.

Political uncertainty in Canada, triggered by the snap election set for April 28, is adding further downward pressure on the CAD. While the CAD has seen some temporary relief, its outlook remains uncertain as risk-averse investors may begin taking profits.

This Thursday, the US will release its inflation data, followed by the Bank of Canada’s interest rate decision on April 16 after the CPI report. If inflation rises in either country, it could boost their currencies, as markets may see it as a sign that central banks could halt their monetary easing policies.

As of April 9, the MACD indicator is in negative territory, signaling bearish momentum. The red line (MACD) remains below the signal line, and the widening negative gap between them confirms the downtrend, suggesting further downside potential for the currency pair.

Current recommendation: 

Buy at the current price. Take profit – 1.43830. Stop loss – 1.41.