Canadian Dollar Forecast: USD/CAD Fresh 4-Year High on Trump Tariffs

Canadian Dollar, USD/CAD Talking Points:

• USD/CAD set a fresh four-year-high in late Friday trade, taking out the 1.4467 swing from December which was set just after FOMC.
• Monday marks the inauguration of President-elect Donald Trump and the prospect of tariffs on Canadian imports has prodded a strong breakout in USD/CAD since the idea first came to the table in late-November. The pair broke-out to a fresh high late in last week’s session as we near Monday’s inauguration.
• USD/CAD now trades very close to the high watermark from 2016 and 2020, which plots just inside of the 1.4700 level.
• From the reaction on the past two weekly bars, bulls remain in-control and the door is open for a breakout test as we move towards the inauguration of President Trump next Monday. The bigger question if whether buyers can continue the run and for how long as mean-reversion remains a possibility from longer-term timeframes.

Central banks AD

It was a tale of two trends in USD/CAD last week, as the pair pulled back through Wednesday followed by a strong bounce on Thursday and Friday, initially slowing inside of the swing-high from December at 1.4467. An early-session pullback on Friday had pushed price below 1.4400, albeit temporarily, and buyers loaded up into the weekly close to hit a fresh four-year-high in the pair with the 1.4500 level now very nearby. 

The bullish drive that showed around the Q4 open and caught a shot-in-the-arm in late-November very much remains in-play.

Ever since President-elect Trump began to discuss the topic of tariffs on Canada, USD/CAD has held a bullish drive; and with the inauguration set for this Monday, it appears that there’s a further pricing-in of that risk. One headline from Bloomberg proclaims that ‘Canada Braces for ‘Punch in the Face’ as Trump Takes Office.’

As previously highlighted, the prospect of tariffs on Canadian imports to the U.S. represents a massive unknown, and investors generally abhor uncertainty, and it appears that we’re seeing that at play with USD/CAD continuing its breakout as driven this wild card. Whether tariffs come to fruition, however, remains another matter altogether.

From the weekly chart, the notable item so far in 2025 has been the support defense, noted by two wide underside wicks on the two most recent weekly bars. This illustrates that bears had an open door to run a wider pullback but failed to cease the opportunity. Something like this can lead into tests of fresh highs as bears further relent, but the more interesting scenario is when that takes place, but bulls lack the drive to hold those fresh highs. The next significant price where something along those lines might happen is the 1.4500 psychological level.

USD/CAD Weekly Price Chart

USD/CAD: Reading Reactions After Fresh Highs

From the monthly chart we can see two other instances of USD/CAD testing in a similar region. The first was back in 2015 and then there was another around the onset of Covid in 2020.

In both of those scenarios there were aggressive reactions that saw bears quickly take-over, leaving extended upper wicks on those weekly bars, and that clearly hasn’t happened here, at least not so far. The December monthly bar was the 1.4000 breakout and that was the second largest monthly gain in more than two years, following only the October outlay, which kicked off the Q4 breakout in both USD and USD/CAD.

But this sets the stage for a resistance test. The first level of note is the 1.4500 level, which has, so far, been defended. This price almost came into play in December after the FOMC meeting but bulls lacked the motivation for a test back then. And it almost came into play again in early-2025 trade and, once again, buyers lacked the drive to push through for a test of the big figure.

It was a late-session push on Friday that finally saw buyers push to fresh highs but with a few minutes left in the session, they haven’t yet been able to stretch up to the big figure.

So, if we get continuation in early-trade next week, that’s the first level to monitor for reaction. But perhaps even more important is the price zone lurking overhead.

That area is the 22-pip zone between the swing-highs from 2016 and 2020, which plots at 1.4668 and 1.4690. Given how contentious this zone has been in the past, there could be a plethora of stop orders around those levels.

USD/CAD Monthly Price Chart

USD/CAD Capitulation Scenarios

A major export from Canada to the United States is energy. If tariffs do get enacted, the big question is whether there would be a carve-out for energy exports into the U.S., because if there isn’t, a major inflationary factor could soon come into play. And even if there is a carve-out in American tariffs for energy imports from Canada, it’s a card that Canadian policymakers hold to counter the threat. In the U.S., the primary delivery mechanism for products is by truck, and higher oil prices could force inflation on a bevy of products, even those that aren’t directly petroleum-based. This would be something that could constrain the Fed from rate cuts later this year and, in turn, something that could hinder equity gains.

Given President Trump’s focus on market performance and growth, which would be hindered by higher levels of inflation, it seems that this would be a path that he wouldn’t want to go down.

There’s also the prospect of political affiliation, as President Trump’s opposite of Justin Trudeau has already stepped-down from office, and many prediction markets are looking for the next Prime Minster to be Pierre Poilievre, someone often seen as more aligned towards President Trump.

So, where this becomes interesting is for longer-term mean-reversion scenarios in USD/CAD. At this point, bulls clearly remain in-charge, as shown by that weekly chart above. But – if we see price push up to fresh high above the 1.4500 handle – then pullback scenarios could soon come into play. And if bulls are unable to defend supports, the door can begin to open wider for possible reversal potential.

Last week saw buyers defend the 1.4300 level, with a low of 1.4303 for the period, and the week before that saw 1.4280 defended. Those prices provide some context for reversal potential, as a breach of those lows would highlight bears swinging a stronger move. Below those prices, the 1.4200 level is of note, and then the 1.4000 level, and it’s the if/when that level is traded through that the longer-term mean reversion theme looked at on the monthly chart above would become attractive again.

USD/CAD Daily Price Chart

--- written by James Stanley, Senior Strategist