Canadian Dollar Forecast: USD/CAD Dips on BOC, Latest Tariff Drama

USD/CAD Key Points

• The Bank of Canada cut interest rates by 25bps to 2.75%, as widely expected, while warning about a “new crisis” from the tariffs and budding trade war between the US and Canada.
• US President Trump has reportedly stepped back from his Canada-specific 50% tariffs on steel and aluminum, but the scheduled 25% across-the-board tariffs on those metals kicked in today.
• USD/CAD has reversed off yesterday’s highs to trade back in the middle of its late-December through January range in the 1.4300-1.4500 zone.

Amidst a deluge of on-again, off-again tariff pronouncements on both sides of the 49^th parallel, USD/CAD traders are happy to have at least one cut-and-dried economic development to sink their teeth into: Earlier this morning, the Bank of Canada cut interest rates by 25bps to 2.75%, as widely expected.

In his accompanying press conference, BOC Governor Tiff Macklem characterized the economic outlook as “subject to more-than-usual uncertainty,” citing the “intensifying trade conflict” as weighing on sentiment and activity. In a somewhat ominous note given recent tariff tensions, he went on to warn that the country is “facing a new crisis” and that “monetary policy cannot offset the impacts of a trade war.”

While US President Trump has reportedly stepped back from his Canada-specific 50% tariffs on steel and aluminum, the scheduled 25% across-the-board tariffs on those metals kicked in today, prompting Canada to announce more than $20 billion in retaliatory tariffs, though there is a potential silver lining: Canada’s new Prime Minister, Mark Carney, is ready to meet with Trump to end the nascent trade war between the two allies.

As the chart below shows, traders in prediction markets (albeit in relatively low volume trade) are still split on whether the US tariffs on Canada will be removed imminently:

Source: Polymarket

Ultimately, the relative strength of the Canadian dollar will ebb and flow with tariff headlines out of Washington DC and Ottawa more than traditional economic data and even central bank decisions. On that front, traders should monitor the readouts from the upcoming meeting between high-level policymakers and the eagerly-awaited implementation of Trump’s “reciprocal tariffs” on April 2^nd to gauge the future path of USD/CAD.

Canadian Dollar Technical Analysis – USD/CAD Daily Chart

Source: StoneX, TradingView

From a technical perspective, USD/CAD has reversed off yesterday’s highs to trade back in the middle of its late-December through January range in the 1.4300-1.4500 zone. The longer-term uptrend remains intact, with both the 50- and 100-day moving averages trend higher, so traders may be biased toward a potential topside breakout in the coming days, especially if we see continued escalation in the tit-for-tat tariff battle between the two North American countries.

A breakout above 1.4500 would set the stage for a continuation toward the multi-decade highs near 1.4700 next, while a downside break below 1.4300 accompanied by a trade breakthrough could see the pair revisit its year-to-date lows near 1.4150 in short order, regardless of what the Bank of Canada or Federal Reserve do next.

-- Written by Matt Weller, Global Head of Research

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