The US Dollar and Canadian Dollar (USDCAD) are at a critical juncture, and the stakes couldn’t be higher for traders and investors alike. Here’s why: the USDCAD pair is hovering near its 2025 lows, caught in a tug-of-war between two powerful forces—the US-Mexico-Canada Agreement (USMCA) risks weighing on the CAD and a surprisingly strong US jobs report boosting the USD. But here’s where it gets controversial: while the market initially rallied on the hot Non-Farm Payrolls (NFP) data, it quickly erased those gains. Is the market underestimating the strength of the US economy, or is it bracing for a different kind of shock?
FUNDAMENTAL OVERVIEW
USD: The US Dollar surged yesterday after the NFP report smashed expectations, with 130,000 jobs added compared to the forecasted 70,000. This led traders to scale back bets on Federal Reserve rate cuts—but only briefly. The market’s reaction raises questions: Is it still too focused on potential labor market weakness, or is it waiting for tomorrow’s US Consumer Price Index (CPI) report? One thing is clear: recent data suggests the economy is improving, making further rate cuts less likely. Speaking of CPI, this is the part most people miss: if the inflation data comes in hot, the market won’t be able to shrug it off like it did with NFP. A hawkish repricing could fuel a sustained USD rally. Conversely, soft CPI might keep the dollar under pressure but won’t drastically alter market expectations.
CAD: The Canadian Dollar took a hit yesterday after a Bloomberg report revealed that US President Trump is considering withdrawing from the USMCA trade deal. This is a big deal because Canada enjoys low tariffs on US goods thanks to USMCA. If Trump pulls out, tariffs would soar, potentially derailing Canada’s economy. Bloomberg noted that while Trump hasn’t made a final decision, he’s actively questioning the agreement’s value. For CAD traders, USMCA negotiations remain a key driver, so any updates—positive or negative—will move the currency. On the monetary policy front, the Bank of Canada (BoC) is holding steady, with no rate changes expected this year. Economic data supports this stance, with a stabilizing labor market and core inflation slightly above the BoC’s 2.5% midpoint target.
TECHNICAL ANALYSIS
Daily Timeframe: USDCAD has tested the 2025 lows twice but failed to break through decisively. Buyers are likely to defend these levels, aiming for a pullback to the major trendline. Sellers, however, are waiting for a break lower to push the pair into new lows. And this is the part most people miss: the battle between buyers and sellers here could set the tone for the pair’s direction in the coming weeks.
4-Hour Timeframe: The pair recently broke above a downward trendline, giving buyers more confidence to target the 1.3723 high. Sellers, meanwhile, are eyeing a break below recent lows to extend the bearish trend. This timeframe highlights the ongoing struggle between bullish and bearish forces.
1-Hour Timeframe: After the USMCA news and NFP report, USDCAD is consolidating as traders await the CPI release. From a risk management perspective, buyers might find better entry points around 1.3550 to target 1.3723. Sellers, on the other hand, will pounce if the pair drops below 1.3550. The red lines on the chart represent today’s average daily range (ADR), offering a useful reference for short-term traders.
UPCOMING CATALYSTS
Today, we’ll get US Jobless Claims data, but all eyes are on tomorrow’s CPI report, which could be a game-changer. Here’s a thought-provoking question for you: If CPI comes in hotter than expected, will the market finally acknowledge the Fed’s hawkish tilt, or will it continue to bet on rate cuts? Let us know your thoughts in the comments below. The debate is far from over, and your perspective could spark a lively discussion!
