USD/CAD Review dated January 31, 2025
At the end of the week, USD/CAD continues to strengthen, trading near 1.4480, maintaining the potential for updating local highs. The main impact on the exchange rate is the Bank of Canada's decision to reduce the interest rate from 3.25% to 3.00%, which coincided with analysts' forecasts. The head of the regulator, Tiff Macklem, explained this step by the growing risks to the Canadian economy, including the possible introduction by the United States of 25% tariffs on Canadian exports in the coming days.
At the same time, Donald Trump hinted at the possible lifting of sanctions on imports of oil and petroleum products, which creates uncertainty in the forecasts for the Canadian economy. In this regard, the Bank of Canada refrained from making specific statements about the prospects for monetary policy, leaving the market waiting for new data.
The situation in the United States and the dollar's reaction
The US dollar index is strengthening and has reached the level of 108.00, which was supported by mixed macroeconomic indicators. US GDP growth in the fourth quarter slowed from 3.1% to 2.3%, which was lower than the expected 2.7%. However, the positive thing for the dollar was the decrease in the number of initial applications for unemployment benefits from 223.0 thousand to 207.0 thousand, which indicates the continued stability of the labor market.
Additional support for the US dollar is provided by expectations of new tariff restrictions on imports from Canada, Mexico and a number of other countries. Donald Trump explained the need to introduce these measures in an effort to reduce illegal migration and eliminate the imbalance in trade relations. If this scenario is implemented, the Canadian economy may face additional challenges, which will increase pressure on CAD.
USD/CAD technical Analysis for today
On the daily chart, the currency pair is trading within the ascending channel with the boundaries of 1.4400–1.4800.
Technical indicators confirm the probability of strengthening:
• The alligator indicator shows an expansion of the range of moving averages, which signals an ongoing upward movement. Fast EMAS continue to diverge, indicating a strengthening trend.
• The awesome oscillator (AO) indicator remains in the positive zone, forming correction bars.
Trading recommendations
• Purchases: possible after the price is firmly fixed above 1.4520 with a target level of 1.4740. Stop loss at 1.4450.
• Selling: it is advisable after breaking down the support of 1.4410 with a target of 1.4170. The stop loss is 1.4520.
The further dynamics of USD/CAD will depend on the US decision on tariffs, as well as on comments from representatives of the Federal Reserve and the Bank of Canada on the prospects for monetary policy.