The USD/CAD exchange rate has crashed in the past few days and is now hovering at its lowest level since November last year. It has plunged by over 6.3% from its highest level in 2024 as the focus shifts to the upcoming Bank of Canada (BoC) decision and Canadian inflation data.
Concerns about the US dollar continues
The USD/USD pair has dropped because of the ongoing US dollar index sell-off. The DXY index has plunged from the year-to-date high of $110 to a low of $99, its lowest level in years.
This decline happened because of the questions about the role of the US dollar as the safe haven after Donald Trump implemented unilateral tariffs on American allies and foes. While he paused his tariffs on most countries, he maintained the baseline rate of 10% on all countries and a 25% levy on imported vehicles, steel, and aluminum.
The US also started to play a game of chicken with China, one of its top trading partners. At the end, the US imposed a 145% tariff on all imported goods from China, while China levied a 125% fee on US goods.
The most notable news as this crisis escalated was the performance of the bond market where US bonds, which are widely seen as safe havens, traded as meme coins. Data shows that the 10 year yield initially crashed below 4% for the first time in months and then surged to over 4.5%.
The USD/CAD pair reacted to other key news last week. Apart from the ongoing trade war, the US published encouraging consumer inflation data. According to the Bureau of Labor Statistics (BLS), the headline Consumer Price Index (CPI) dropped to 2.4% in March and analysts expect the downward trend to continue.
The core CPI, which excludes the volatile food and energy products, dropped from 3.2% in February to 2.8% in March. It was the first time that the inflation figure moved below 3% since 2022.
The falling inflation raised hopes that the Federal Reserve will intervene and slash interest rates later this year. PolyMarket players expect that the bank will cut rates three times this year.
Bank of Canada interest rate decision
The next important catalyst for the USD/CAD pair will come out on Tuesday when the Canadian statistics agency publishes its inflation data.
Economist expect the data to show that the headline Consumer Price Index dropped from 2.7% in February to 2.5% in March. Core CPI is expected to move from 2.5% to 2.3%.
These numbers will come a day when the Bank of Canada will start its monetary policy meeting. The hope among analysts is that the bank will slash rates by 0.25% to 2.5%.
The BoC has been in a highly dovish tone in the past few months as it moved rates from a high of 5.5% to the current 2.7%.
Analysts believe that the urgency to cut rates has increased now that the US has imposed tariffs on the country, raising the possibility that it will move into a recession this year.
USD/CAD technical analysis
The daily chart shows that the USD/CAD exchange rate has been in a steady downward trend this year as it moved from a high of 1.4797 in February to the current 1.3865.
It has crashed below the 50% Fibonacci Retracement level, a sign that bears are now in control. The pair has also moved below the 50-day and 200-day Exponential Moving Average (EMA).
Also, the Relative Strength Index (RSI) and the MACD indicators have all pointed downward this year. Therefore, the pair will likely continue falling, with the next key support to watch being at 1.3795, the 61.8% retracement level. It will then drop to the psychological level at 1.3700.
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