USDCAD Surge Slows but Medium-Term Risks Remain Skewed to the Upside 
Burc Oran
January 9, 2025

The Canadian dollar has been on the losing side since September, impacted by continuing trade rhetoric from Trump. USDCAD broke above the 1.40 resistance, which had been confining the currency for more than two years. 

This upward move is driven by two key factors. First, the surge in the dollar index, fueled by a stronger-than-expected US economy. The robust economic performance, resilient jobs market, and slowing disinflation process have prompted the Federal Reserve to adopt a more hawkish stance, reducing expectations for rate cuts in 2025. Furthermore, potential incoming tariffs are adding to the dollar’s strength. 

On the other hand, Canada has been reducing interest rates at a faster pace, with expectations of 2 or 3 more cuts in 2025. Canada’s composite PMI average for the last 12 months stands at 48.3, indicating that economic activity has been contracting at a steady pace. 

In addition to the diverging economic trajectories, Canada faces significant tariff threats and political risks. Trump’s tariff threats, citing a substantial trade deficit with Canada, have intensified political pressure. This culminated in heightened political turmoil, leading to Trudeau’s resignation. The elevated political risks further weigh on the Canadian dollar. 

(USDCAD Daily Chart) 

©Bloomberg 

The break above the 1.40 resistance was a significant game-changer for USDCAD, completely altering the medium-term outlook. Following the breakout, any downward move can be seen as a buying opportunity as long as the former resistance, now turned support at 1.40, holds. 

After the breakout, USDCAD quickly reached 1.45, but this level appears to be acting as a strong resistance. If 1.45 holds for an extended period, there is a possibility of a moderate correction toward 1.42 or 1.40, depending on incoming news and data. Such a correction could present an attractive opportunity for USDCAD bulls who missed the initial surge from 1.40 to 1.45. 

In the medium term, the most appropriate target for further upward movement appears to be 1.50. This level is both a psychological and horizontal resistance and could align with the upper boundary of the prevailing trend channel. 

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