USDCAD declines amid US dollar weakness and improving Canadian trade prospects

USDCAD has rebounded from its early July support level despite broader US dollar bearishness against major currencies. The pair opened at 1.36334 on Wednesday.

The dollar remains under pressure due to mixed signals from the Federal Reserve (Fed) and heightened political risks. Fed Chair Jerome Powell hinted at a potential July rate cut if labor market data continues to soften. This weighs further on the greenback, which is already losing support as President Trump’s expansive tax and spending bill raises concerns over the national debt. While positive job data has triggered short-term rebounds, lingering doubts about fiscal sustainability and a widening budget deficit cloud the dollar’s outlook.

Weakness in the US industrial sector adds to macroeconomic risks. Trump’s tariffs continue to disrupt supply chains, dampening employment growth and new orders. These factors bolster the case for Fed easing, reinforcing the bearish USD sentiment.

The loonie is strengthening as US-Canada trade tensions ease. Canada’s repeal of its digital services tax for IT companies, a demand from the Trump administration, has paved the way for renewed trade negotiations and reduced the threat of additional tariffs. Prime Minister Mark Carney aims to resolve the dispute by July 21. While markets remain cautiously optimistic, the potential depth and economic impact of any agreement remain uncertain.

Oil prices also influence the CAD. Brent and WTI are trading in tight ranges ($67 and $65 per barrel, respectively), supported by a weaker US dollar and steady Chinese demand. However, expectations of an OPEC+ output hike by 411,000 barrels per day in August and rising US crude inventories (+680,000 barrels weekly) could cap gains, limiting upside for the loonie.

The daily USDCAD chart shows a downtrend, confirmed by lower prices and the positioning of exponential moving averages (EMA 20 and EMA 50). The Stochastic oscillator reflects seller dominance, though the market is not yet oversold. Recent upward movement in the %K line toward %D suggests a potential short-term rebound, despite the broader bearish bias.

Current recommendation 

Selling at the 1.35670 support level breakdown. Take profit – 1,35080. Stop loss – 1,37360.