USD/CAD spikes to 5-year high as Trump's tariffs come knocking

The Canadian dollar and Mexican Peso were on the ropes late Thursday after President Trump said Canada and Mexico will be hit with 25% tariffs as soon as Saturday. Oil prices are a factor in tariff determination according to Trump, who added that they “will decide probably Thursday” whether the trigger will be pulled.

USD/CAD spiked to a near 5-year high and the Canadian dollar was lower across the board. CAD/JPY fell to a 7-week low and marked its third daily loss in excess of 1% over the past three weeks. The cross is also on track for its worst week in seven.

I said in yesterday’s report that I would assume USD/CAD would remain rangebound until a breakout was accompanied with a suitable headline. Well, Trump is once again the headline. The daily chart shows USD/CAD has broken out of its sideway range on the daily chart, with its highest daily close since March 2020. And unless we see some backroom deal struck between Trudeau and Trump, it seems USD/CAD could continue higher over the near term.

However, the 2020 high resides at 1.4668, just beneath the upper 1-week implied volatility band. But if tariffs are implemented, it could end up supporting the Canadian dollar to a degree. The BOC cut rates earlier this week but warned that tariffs could lead to persistent inflation, which means the arrival of tariffs could mark the end of the BOC’s easing cycle. But with the economic growth likely to take a hit before tariffs show up in prices, USD/CAD is likely to continue higher as monetary policy takes a back seat.

Economic events in focus (AEDT)

• 10:30 – JP CPI (Tokyo), jobs/application ratio, unemployment rate
• 10:50 – JP industrial production, retail sales
• 11:30 – AU PPI Q4, housing credit
• 20:00 – DE state CPIs
• 00:00 – DE CPI
• 00:30 – US core PCE

CAD/JPY technical analysis:

In December I picked EUR/JPY as my preferred short of the year. But if that falls to such bearish levels that I had suggested, CAD/JPY and AUD/JPY are also likely to fall alongside it. The weekly chart shows CAD/JPY completed a 3-wave correction against its July – August plunge, and as momentum has since turned south following a lower high, perhaps the wheels are already falling off.

The daily chart shows support was found at the December low. But as Thursday was its most volatile down day since mid November and it closed in the lower third of the days range, bears may be seeking to fade into resistance area around 107 in anticipation of its next leg lower.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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