AUD/CAD Forecast: U.S. Tariffs Target Canada, But Aussie Takes the Hit

AUD slumps despite hawkish RBA minutes and stronger data
Trump tariffs fuel risk aversion, weighing on the Aussie
AUD/CAD struggles below 200DMA, Key support at 0.8953

Summary

The Aussie dollar remains under pressure, sinking despite hawkish RBA minutes and stronger domestic data. Instead, escalating U.S. trade tensions with China, Canada, and Mexico have driven sentiment, with markets now pricing in an 88% chance of a second RBA rate cut in May.

AUD’s weakness is particularly stark against the Canadian dollar, which has held firm even as Canada braces for steep U.S. tariffs and prepares retaliatory measures. The divergence extends to AUD/CAD, which remains capped below the 200DMA. With technical signals flashing amber, a downside break could see a resumption of the broader bearish trend.

Trade War Escalation Hammers AUD

The Aussie dollar’s slide comes despite the RBA’s February meeting minutes striking a hawkish tone, with policymakers failing to commit to further rate cuts ahead. Data also pointed to a pick-up in economic growth late last year. Yet the currency has crumbled, hit by escalating trade tensions between the U.S. and its key trading partners, including China, Canada, and Mexico. Rate cut odds for May have surged to 88% from 70% as investors price in a worsening economic and market backdrop.

To put the Aussie’s underperformance into perspective, it’s lagging the Canadian dollar in Asia—even as Canada braces for new 25% tariffs on exports to the U.S. Energy products will be spared from the worst but still face additional 10% levies.

In response, Canada has vowed swift retaliation, slapping 25% tariffs on C$30 billion of U.S. imports starting from Tuesday, with additional duties on C$125 billion of goods set to follow in three weeks. Ominously, the Canadian government is also in talks with provinces and territories about non-tariff measures, raising the risk of a full-blown trade war.

Although the Aussie isn’t directly affected by the trade war—for now—its underperformance likely reflects growing concerns over China’s economy, with new 10% U.S. tariffs on Chinese imports set to take effect Tuesday.

AUD/CAD Grinds Higher, For Now

Source: TradingView

AUD/CAD has been grinding higher in 2025, forming what looks like a bear flag—suggesting the broader downtrend could resume if a downside break occurs. The pair’s failure to retest uptrend resistance recently paints a heavy picture, reinforced by bearish momentum signals from MACD and RSI (14).

For now, bears will have to be patient with eight separate rejections of moves below 0.8953 in February. That level remains a key battleground in the fight between the commodity currencies. Former downtrend resistance dating back to October also warrants attention, given its role as a springboard for several recent bounces. A break below those levels could open the door for a retest of the January swing low at 0.8855, a known support zone.

On the topside, gains have been capped below the 200-day moving average for some time now with sellers emerging from .9080. While that may prove tough for bulls to crack without a noticeable improvement in risk appetite, if we were to see it taken out it may bring a push towards .9138 into play.

-- Written by David Scutt

Follow David on Twitter @scutty

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