USD/CAD currency pair moves higher towards 1.3750 during early European morning hours on Monday, bolstered by persistent US-Canada trade tensions as well as market caution in anticipation of the Bank of Canada’s Business Outlook Survey. The Canadian Dollar has difficulty gaining traction as investors weigh the risks of a possible 35% US tariff on Canadian imports, although diplomatic negotiations spearheaded by Canadian Prime Minister Mark Carney provide some hope. In a supporting role, firm crude Oil prices, driven by new EU sanctions against Russian supply, offer a possible support base for the CAD, which helps to cap the upside on the USD/CAD pair.

KEY LOOKOUTS

• Markets look to the BoC report for new economic sentiment and policy direction.

• Attention is on possible 35% tariffs and eleventh-hour negotiations among Canadian and US authorities.

• CAD could be supported by WTI Oil remaining close to $66 in light of EU sanctions on Russian Oil.

• Market restraint keeps the US Dollar bid, putting additional upside pressure on USD/CAD.

The USD/CAD pair is getting into gear, moving towards the 1.3750 level as investors are grappling with increased trade tensions between Canada and the US. Market players are keeping an eye on events related to the imposition of 35% US tariffs on Canadian products, with last-minute diplomatic efforts in place to minimize further dislocation. In the meantime, the Canadian Dollar continues to be under selling pressure, but stable Oil prices are providing some respite. All attention is on the Bank of Canada Business Outlook Survey due out soon, which may give the pair further guidance in the North American session.

USD/CAD rises close to 1.3750 as US-Canada trade tensions and investor apprehension increase. Traders wait for the Bank of Canada’s Business Outlook Survey for new economic signals, while bullish crude Oil prices provide little support to the Canadian Dollar.

• USD/CAD hovers at 1.3750, having recovered from recent losses against a backdrop of caution in the markets.

• US-Canada trade tensions grow more heated, with threats of a 35% tariff on Canadian imports.

• Canadian PM Mark Carney sends a trade envoy to Washington for last-ditch talks.

• BoC Business Outlook Survey due, which is likely to shed important light on economic sentiment.

• Crude Oil prices stable, with WTI at $66, underpinning the commodity-linked CAD.

• EU’s 18th round of Russia sanctions contributes to worldwide supply worries, helping Oil prices.

• US Dollar is supported by safe-haven flows, placing the USD/CAD pair on a strong trend.

The USD/CAD currency exchange rate is presently driven by increased political and economic events between Canada and the United States. With the US threatening a tariff of 35% on Canadian imports, relations between the two countries are strained. In a move to preempt this, Canadian Prime Minister Mark Carney has dispatched a trade envoy to Washington with the aim of securing a deal before the imminent August 1 deadline. The diplomatic initiative has kindled guarded hope in the markets, with investors monitoring closely for any sign of movement in the trade talks that may affect cross-border trade and investor mood.

USD/CAD DAILY PRICE CHART

SOURCE: TradingView

Besides trade dynamics, commodity prices, especially crude Oil, are also providing support to the Canadian Dollar. West Texas Intermediate (WTI) Oil is steady near $66 per barrel, thanks mainly to new European Union sanctions on Russian exports. The sanctions cover diminished price caps and stricter constraints on Moscow’s energy earnings. The Canadian economy, highly integrated with the energy exports, would gain from sustained Oil price strength, even while general uncertainties influence market performance.

TECHNICAL ANALYSIS

USD/CAD is demonstrating bullish sentiment as it trades at the 1.3750 resistance level, trying to bounce from its recent decline. The pair remains above its short-term moving averages, indicating underlying strength. An extended break above 1.3750 might trigger the way toward the 1.3800 psychological mark, with near-term support resting around 1.3700. Momentum indicators like the RSI continue to register in neutral-to-positive ground, suggesting room for further upside if bearish pressure continues.

FORECAST

If the tensions in trade relax through effective Canada-US negotiations, and the Bank of Canada’s Business Outlook Survey indicates the resilience of the economy, USD/CAD can continue its upward trend. A continued break above the 1.3750 level could drive the pair to the 1.3800 level and further, particularly if the US Dollar continues to be supported by safe-haven flows and firm economic data. Additional advances will also materialize if Oil prices plateau or fall, lowering support for the Canadian Dollar.

Conversely, lack of an agreement on a trade deal by the August 1 deadline or a dovish sentiment in the BoC survey might put pressure on the Canadian Dollar. Yet, any substantial increase in crude Oil prices due to global supply worries or geopolitical tensions would assist the CAD in bolstering strength. In such a situation, USD/CAD can fall back towards the 1.3700 mark of support, with even more bearish potential in case the momentum is reversed in favor of the Canadian Dollar.