USD/CAD Outlook: Loonie Takes a Nosedive Amid 25% Tariff

• The USD/CAD outlook shows a sharp decline in the Canadian dollar to start a week. 

• On Wednesday, Canada might finally start feeling the pain of a high blanket tariff.

• Data in the previous session also showed hotter-than-expected underlying US inflation.

The USD/CAD outlook shows a sharp decline in the Canadian dollar to start a week when Trump might impose a 25% tariff on Canada. Consequently, traders dumped the loonie, anticipating negative impacts on Canada’s economy. Meanwhile, the dollar surged after upbeat inflation figures in the previous session. 

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Since February, Canada has narrowly escaped a 25% US tariff as Trump kept postponing and suspending. However, on Wednesday, Canada might finally start feeling the pain of such a high blanket tariff on all its imports to the US. Canada exports nearly 75% of its goods to the US. Therefore, the impact of such a tariff will be massive on the economy. 

However, Canada will not take the tariff lying down. Top officials have shown their readiness to impose counter-tariffs. This would escalate the trade war between the two countries. As a result, there was little delight after data on Friday revealed a bigger-than-expected expansion in Canada’s economy. 

Meanwhile, data in the previous session also showed hotter-than-expected underlying inflation in the US. It will likely keep the Fed cautious, boosting the dollar.

USD/CAD key events today

Market participants do not expect any key releases from Canada or the US today. Any volatility will come from the anticipation of US tariffs. 

USD/CAD technical outlook: Trendline breakout signaling uptrend

On the technical side, the USD/CAD price has broken above its bearish trendline, indicating a surge in bullish momentum. Before the breakout, the price oscillated between this trendline and the 1.4250  support level. There was no clear direction in the market as the price chopped through the 30-SMA. 

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However, the breakout indicates that bulls might be ready to start an uptrend. The price has made a solid swing above the 30-SMA. At the same time, the RSI has risen to trade nearer the overbought region, showing stronger bullish momentum. 

Still, they must break above the 1.4400 resistance level to make a higher high and confirm a new trend. If the price fails to break above this resistance, it might drop to retest the trendline before climbing higher or falling back to the 1.4250 support. 

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