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USD/CAD Approaches 1.3800 Due to Diplomatic Market Sentiment and Expectation of Fed Interest Rate Decision

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  • May 7, 2025
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USD/CAD currency pair has risen towards 1.3800 since investors take a conservative approach following the Federal Reserve’s expected interest rate decision. Although the Fed is likely to leave rates unchanged, market focus is on comments by Chair Jerome Powell in light of existing trade tensions and political pressure from President Trump. The Canadian Dollar (CAD) is encountering some headwinds even as risk sentiment has improved in the wake of a joint press conference between Canadian Prime Minister Mark Carney and US President Donald Trump. Nonetheless, concerns about Canada’s domestic economic data, such as a sharp decline in the Ivey PMI, are dragging the CAD down. In the meantime, senior-level negotiations between US and Chinese officials will be held in Geneva, further complicating global trade dynamics. KEY LOOKOUTS • Market participants will be watching closely for the Fed’s interest rate move and Chair Jerome Powell’s remarks, especially on possible future rate cuts and the economic effects of continued trade tensions. • The result of US-Canada trade talks, particularly after the joint press conference between President Trump and Prime Minister Carney, will be instrumental for the CAD. Any news on tariffs or trade deals could have a strong impact on the pair. • The high-level meeting between US Treasury Secretary Bessent, Trade Representative Greer, and Chinese Vice Premier He Lifeng in the coming days may shift global trade sentiment, impacting the USD and CAD. • The steep fall in Canada’s Ivey PMI indicates diminishing business sentiment, and further dismal economic data will place extra stress on the CAD in the short term. USD/CAD pair moves towards 1.3800, market participants stay nervous in anticipation of the Federal Reserve interest rate decision, with market focus on Chair Jerome Powell’s remarks on potential rate cuts and their implications during the prevailing uncertainty over trade. The result of US-Canada trade negotiations, especially after the recent encounter between Prime Minister Mark Carney and President Donald Trump, is also a critical consideration, since any development or reversal in tariff negotiations may impact the CAD’s performance. Also, the high-level US-China trade talks scheduled this weekend might affect global risk sentiment, impacting both currencies in turn. At the same time, Canada’s weak Ivey PMI provides a hint that business sentiment may slow down, exposing the CAD to more downward risks if domestic economic indicators remain weak. USD/CAD currency pair is moving towards 1.3800 as market focus shifts to the Federal Reserve interest rate decision and US-China-Canada trade negotiations. Canada’s softening economic indicators, led by a steep decline in the Ivey PMI, put more pressure on the CAD. •  The pair is quoted at 1.3790, making up losses from the last session as the US Dollar strengthens. •   Market players are wary in front of the Federal Reserve interest rate decision, with the expectation of no change but increased focus on Chair Jerome Powell’s testimony. •   President Trump keeps putting pressure on the Fed for possible rate cuts, which shifts market mood. •  Recent Canadian PM Mark Carney press conference with US President Trump indicated positive negotiations, with more discussions to follow at the G7. •  US Trade Representative Greer and Treasury Secretary Bessent are sitting down with Chinese Vice Premier He Lifeng in Geneva in a breakthrough meeting of international trade tensions. •  Canada saw its business sentiment decline steeply in the April Ivey PMI. •  Gaining risk appetite across the world lifted the Canadian Dollar, even if global trade issues continue to put a strain on domestic concerns. Investors are keeping a close eye on events on several fronts as the USD/CAD currency pair stays flat in anticipation of major economic and political developments. The attention is mainly on the forthcoming Federal Reserve interest rate announcement, where markets expect nothing to change but remain sensitive to comments from Chair Jerome Powell, particularly against the backdrop of continuing trade tensions and political pressure from President Trump. These remarks are likely to offer hints on the Fed’s next policy course and how it will deal with inflation issues and world economic uncertainty. USD/CAD DAILY PRICE CHART CHART SOURCE: TradingView Aside from the Fed, the global trade dynamic is also largely influencing market sentiment. Top-level meetings are scheduled to be held in Geneva between US and Chinese officials as there are indications of easing trade tensions. In the meantime, US President Donald Trump and Canadian Prime Minister Mark Carney have engaged in renewed discussions on trade, providing guarded optimism. That said, Canada’s soft business activity readings, notably the recent Ivey PMI reading, challenge the momentum of the country’s economy, reflecting the delicate dance between forward progress externally and trouble internally. TECHNICAL ANALYSIS USD/CAD is proving resilient as it lingers close to the 1.3800 level,  a landmark psychological resistance area. A prolonged break over this level would indicate more bullish strength, even opening the doors to recent highs. On the bearish side, near-term support is currently at 1.3730–1.3750, where buyers had earlier stepped in. Traders will be awaiting a clear breakdown or rejection around 1.3800 in order to identify the next direction bias, considering that upcoming fundamental drivers such as the Fed decision will drive volatility in the markets. FORECAST USD/CAD pair breaks and holds above 1.3800 resistance level, it might reflect renewed bullish push, and have the possibility of testing higher levels of 1.3850 and possibly 1.3900 in short term. Such move may find support due to sustained demand for US Dollar with global uncertainty, dovish Fed tone, or soft Canadian economic indicators. Upside developments in US-China or US-Canada trade negotiations may also enhance investor sentiment in the USD, adding to the pair’s upward pressure. Conversely, inability to hold above 1.3800 may lead to a corrective pullback, with initial support at the 1.3750 region. A breakdown below this region may see further declines towards 1.3700 or even 1.3660 if risk appetite improves or Canadian data begins to show signs of recovery. Any dovish tone from the Fed or breakthroughs in trade talks that benefit the Canadian economy could also pressure the

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Currencies

USD/CAD Strengthens Towards 1.3900 on Decreasing US-China Tensions and Dipping Oil Prices

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  • April 28, 2025
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USD/CAD currency pair is on the rise, reaching the 1.3900 level as decreasing US-China trade tensions increase demand for the US Dollar while declining crude oil prices drag on the Canadian Dollar. Hopes for better relations between the two economic giants have been fueled by China’s move to exempt some US goods from high tariffs, even as there have been conflicting official reports. Meanwhile, oil prices are falling further as a result of US-Iran nuclear talks making progress and rumors that OPEC+ will further raise output, putting the commodity-correlated CAD under pressure. With the Federal Reserve in blackout mode prior to its next policy decision, market attention continues to be on the geo-political events and energy market fundamentals. KEY LOOKOUTS • Any fresh remarks or actions pertaining to the tariff discussions could have implications for sentiment and USD strength. •  Oil weakness, particularly from US-Iran news or OPEC+ actions, could continue to keep the Canadian Dollar under selling pressure. •  The May 7 FOMC meeting will be closely monitored by markets for interest rate and economy direction signals. Canadian employment or inflation reports coming up could give the CAD guidance in the face of external pressures. USD/CAD are influenced by continuous progress in US-China trade relations, particularly any confirmation or rejection of tariff talks, which would influence investor sentiments and USD demand. Crude oil prices continue to be a key determinant of the Canadian Dollar, with risks to the downside emanating from expected OPEC+ production hikes and Iranian oil returning to world markets. In addition, investors are waiting for the forthcoming Federal Reserve policy meeting on May 7 to look for clues on interest rate direction, with Canadian economic reports like employment and inflation figures contributing to the near-term direction of the pair as well. Traders will be closely observing US-China trade headlines and crude oil price movements, both the main drivers for USD/CAD. Focus also shifts to the Fed meeting and Canadian economic releases for further guidance. • USD/CAD approaches 1.3900, posting gains for the second straight session. • Reducing US-China tensions boost the US Dollar after China temporarily exempts some US goods from tariffs. • Mixed signals emerge as Chinese officials refute reports of ongoing tariff talks. • DXY firm, trading close to 99.70, providing support to USD/CAD. • Fed is in blackout period before the May 7 FOMC meeting. •Declining oil prices weigh on the Canadian Dollar with US-Iran nuclear developments and OPEC+ output expectations. • Market attention turns to geopolitical developments, Fed policy cues, and future Canadian economic data. The USD/CAD currency pair continues to appreciate as market sentiment remains bullish on the US Dollar due to de-escalating tensions between the US and China. Optimism for better trade relations was rekindled following China’s move to exempt specific US imports from its high tariffs, which was seen as an indication of the possibility of thawing their months-long trade confrontation. Despite declarations by Chinese authorities that no talks are in process, the initial step has proved sufficient to give a boost to optimism regarding the prospects of world trade, helping the USD along the way. USD/CAD Daily Price Chart Source: TradingView At the same time, the Canadian Dollar is under pressure due to falling oil prices, which are closely tied to Canada’s economy. Crude prices have declined amid progress in US-Iran nuclear talks, raising the possibility of Iranian oil returning to global markets. Speculation that OPEC+ may increase oil output again has also added to the downward pressure. With the Federal Reserve in a period of silence before its policy meeting and uncertainty still surrounding trade and energy markets, USD/CAD is still sensitive to global news and commodity direction. TECHNICAL ANALYSIS USD/CAD is displaying bullish strength as it tests the important resistance level around 1.3900, boosted by two days of consecutive gains. The currency is trading above its short-term moving averages, reflecting strong purchasing interest, while momentum oscillators such as the RSI are still in neutral-to-bullish levels, reflecting scope for further appreciation before hitting overbought levels. A clean breakout above 1.3900 will potentially initiate a move towards the 1.3950–1.4000 range, while initial support is at 1.3800, which will possibly serve as a floor in the event of a correction. FORECAST If sentiment surrounding US-China relations remains strong and the US Dollar strengthens, USD/CAD can experience additional upside in the near future. Sustained trading above the 1.3900 level could draw additional bullish energy, with the pair moving towards 1.3950 or even 1.4000. Ongoing weakness in crude oil prices, especially if Iranian supply re-enters the market or OPEC+ increases production, will also continue to weigh on the Canadian Dollar, helping to propel the pair higher. But there are still downside risks if diplomatic optimism is lost or official comments persist in contradicting previous optimistic headlines and suppressing risk appetite and US Dollar bearishness. And any subsequent rebound in oil prices—on the back of supply disruptions or more robust global demand—may provide support to the Canadian Dollar and drag USD/CAD back down. Breaking through the support level of 1.3800 may initiate a more severe correction to 1.3740 or lower, particularly if future Canadian data surprises higher.

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