Canadian Dollar Forecast: Has USD/CAD Topped?

Canadian Dollar Talking Points:

• The Canadian Dollar was in meltdown mode coming into February, but the pair reversed aggressively as tariffs were delayed until March 1^st.
• At this point the monthly bar shows as a bearish engulfing candlestick and the longer-term range remains intact. From a technical point of view this keeps the door open for longer-term range continuation in USD/CAD.
• Next week is huge as March 1^st falls on a Saturday and that’s the new date for tariffs to be implemented. The question now is whether another delay will show or whether a deal will be struck; and if not, will USD/CAD spike back-above the 1.4500 level in early-March?

It’s been a change-of-pace so far in February but it’s still too early to say that the drama is over for the Canadian Dollar. The tariffs that drove the currency to 20-plus year lows against the U.S. Dollar earlier in the month were delayed until March 1^st, which means that we could see a repeat of the February open in USD/CAD.

Tariffs were originally scheduled to come into effect on February 1^st, and the final day of January was a dramatic ordeal as an initial news report from Reuters indicating that the date would be pushed back to March 1^st brought a sell-off in USD/CAD. But the White House walked that back and the pair strengthened into the end of the week. And then on the Sunday open USD/CAD gapped-higher in an aggressive fashion until the pair set a fresh 20-plus year high.

Ultimately, that deal was walked back to March 1^st and as news of that hit the headlines USD/CAD pulled back quickly, initially holding the same support that was in-play ahead of the breakout, around the 1.4300 handle. Since then, other battleground have shown in the tariff topic with reciprocal tariffs coming into the picture; but an April 1^st implementation date relaxed markets and led to another fresh lower-low in the U.S. Dollar.

And, really, this begs the question as to whether Trump will actually push tariffs as there could be collateral damage and considerable repercussion. Canada is at the forefront of that argument as Canada and Mexico were two of the countries first targeted by Trump after his election in November.

From USD/CAD price action, that question remains a big driver: The same range that’s been in-play for the past nine years remains in-play today, following a strong reversal from those fresh highs that showed up to begin February trade. The February bar is currently showing as a bearish engulf and when combined with that resistance – points to the possibility of range continuation in the longer-term theme.

USD/CAD Monthly Price Chart

 Chart prepared by James Stanley; data derived from Tradingview

USD/CAD into a Big Week

On that topic of bearish engulfing candlesticks, there was a similar formation on the weekly chart from that opening candle in February. That saw continuation in the week after, helped along by the delayed implementation of reciprocal tariffs as markets warmed to the idea that Trump may not actually be too excited to force tariffs, as it could push U.S. inflation rates higher which could impact rate cut expectations around the Fed.

But – regardless of how one may feel about that which seems to fall across a political divide, the threat can’t be discounted, which is why the USD/CAD bullish trend started after Trump’s initial comment on the matter back in November.

And as further illustration of that theme, the current weekly bar in USD/CAD is showing as a doji as we move into an important week with the following Saturday serving as the day that tariffs are back in-play.

USD/CAD Weekly Chart

 Chart prepared by James Stanley; data derived from Tradingview

USD/CAD Daily

The daily chart in USD/CAD is where I think the interest sits for topping themes, as it was a continuation of lower-lows and highs following the reversal candle in early-February that highlights bearish continuation scenarios. Again, the driver here is very fluid and as we’ve seen since late-November, it’s been pushed aggressively by comments from President Trump, so I’d be careful trying to predict how or what he may say on the matter.

But – from a price action perspective, the pair’s path this month offers some clarity that can assist with strategy implementation. Mainly, whether we get a defense of lower-highs that can open the door for bearish trend continuation.

Or perhaps there’s a volatility spike as we see a similar repeat of the February open, with a bullish USD/CAD move pushing-higher on the fear of tariffs being implemented only for cooler heads to prevail, and the pair pulling back down as another delay of some sort gets announced. In that case, a hold of lower-high resistance at that same 1.4500 level is of interest.

Inside of that, prior support at the 1.4280-1.4300 zone presents shorter-term resistance potential, and there’s also a prior swing around 1.4371 that could be used for resistance.

For the range continuation theme – bears posing a break back-below the 1.4000 level in March would give additional credence to the move, and that becomes the big item to watch but will likely need some help from the headlines as tariff drama continues to drive the flow in currencies and, in-turn, equities.

USD/CAD Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Strategist