CAD Holds Above 1.3650 as US Tariff Uncertainty Caps Gains
The Canadian dollar (CAD) has stayed resilient above the 1.3650 USD/CAD level in early 2025 despite ongoing uncertainty over potential US tariff changes. Supportive drivers include firm commodity prices—particularly oil near $78.50/barrel—improving sectoral trade balances, and the Bank of Canada’s data-dependent, pause-leaning monetary stance. The US retains a modest yield advantage (Fed rate ~5.00% vs BoC ~4.25%), keeping the USD comparatively firmer. Analysts project USD/CAD range-bound trading between roughly 1.3500 and 1.3800 in Q2 2025, with key technical levels at 1.3550 (support) and 1.3750 (resistance). Major risk: renewed US tariff actions, which could trigger volatility, encourage hedging and curb speculative CAD longs. Catalysts that would move the pair decisively include formal tariff announcements, a sharp oil price swing, or unexpected central bank policy shifts. Traders should expect continued range-bound price action until clearer trade-policy signals emerge.
Neutral
This report points to range-bound USD/CAD behavior rather than a clear directional break. Positive fundamentals for CAD—supportive oil prices, improved trade in some sectors and a measured Bank of Canada—provide underlying support. Offsetting forces include a persistent US yield advantage and unresolved US tariff risk, which cap upside and increase downside vulnerability if tariffs materialize. Historically, tariff announcements and trade-policy shocks have produced short-lived volatility and prompt hedging flows, but have not consistently driven long-term trend changes in major FX pairs without sustained policy shifts. Therefore the immediate impact on markets is neutral: expect short-term spikes on tariff headlines (increasing volatility) but overall consolidation until a definitive policy outcome, major oil move, or central-bank divergence emerges.