USD/CAD Remains Vulnerable to Trump Trade Policy Ahead of Fed Meeting

US Dollar Outlook: USD/CAD

USD/CAD gives back the advance from earlier this week even as US President Donald Trump warns of the ‘tremendous deficit with Canada,’ and the exchange rate may trade below the 50-Day SMA (1.4239) for the first time since October should it fail to defend the monthly low (1.4261).

USD/CAD Remains Vulnerable to Trump Trade Policy Ahead of Fed Meeting

Keep in mind, USD/CAD spiked to a fresh monthly high (1.4517) earlier this week as the Trump administration considers a 25% tariff for Canada, but the exchange rate may consolidate over the remainder of the month should it no longer track the positive slope in the moving average.

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In turn, USD/CAD may struggle to retain the advance from the December low (1.3991) ahead of the Federal Reserve interest rate decision on January 29, and it remains to be seen if the change in fiscal policy will sway the central bank as President Trump insists that ‘we just want to be treated fairly with other nations’ while speaking to the World Economic Forum in Davos, Switzerland.

US Economic Calendar

Even though the Federal Open Market Committee (FOMC) is expected to keep US interest rates on hold at its first meeting for 2025, Fed officials may offer a dovish forward guidance as the ‘median participant projects that the appropriate level of the federal funds rate will be 3.9 percent’ at the end of this year.

In turn, more of the same from the FOMC may produce headwinds for the Greenback as the central bank pursues a neutral policy, but Chairman Jerome Powell and Co. may show a greater willingness to further combat inflation as the US economy shows little signs of a recession.

With that said, USD/CAD may continue to hold above the 50-Day SMA (1.4239) should the Fed adopt a less-dovish forward guidance, but the exchange rate may no longer track the positive slope in the moving average if it fails to defend the monthly low (1.4261).

USD/CAD Price Chart – Daily

Chart Prepared by David Song, Senior Strategist; USD/CAD Price on TradingView

USD/CAD may consolidate over the coming days as it halts a three-day advance, but a move below the 1.4280 (38.2% Fibonacci extension) to 1.4299 (April 2020 high) zone may lead to a test of the monthly low (1.4261).
Lack of momentum to hold above the 50-Day SMA (1.4239) may push USD/CAD towards the 1.4170 (23.6% Fibonacci extension) to 1.4210 (78.6% Fibonacci extension) region, but the exchange rate may continue to track the positive slope in the moving average should it hold above the monthly low (1.4261).
Need a move back above the 1.4460 (61.8% Fibonacci extension) to 1.4480 (100% Fibonacci extension) area to bring the monthly high (1.4517) on the radar, with the next region of interest coming in around 1.4590 (78.6% Fibonacci extension).

Additional Market Outlooks

Gold Price Rally Fizzles to Keep RSI Below Overbought Zone

AUD/USD Recovery Stalls Ahead of Monthly High

EUR/USD Pushes Above 50-Day SMA for First Time Since October

USD/JPY Slips to Fresh Monthly Low Ahead of BoJ Rate Decision

--- Written by David Song, Senior Strategist

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