USD/CAD Forecast: Dollar Gains as US-China Relations Improve

• The USD/CAD forecast indicates a rapid de-escalation in global trade tensions.

• China has agreed to cut the US trade deficit.

• Data on Friday painted a mixed picture of Canada’s labor market.

The USD/CAD forecast indicates a rapid de-escalation in trade tensions between China and the US that is supporting the dollar. Meanwhile, market participants are looking forward to US inflation figures for more clues on future Fed policy moves.

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The US and China finally met over the weekend after weeks of a stalemate. The two nations have been at war with each hiking tariffs to unsustainable levels. This trade war has caused a lot of anxiety in the markets, with US assets suffering the most. Economists have even predicted a global recession due to these tariffs.

However, the dollar rallied on Monday after reports of a deal between China and the US. China has agreed to cut the US trade deficit. Such a move might lead to a pause in tariffs that would lift the cloud of uncertainty over both economies. Still, traders are waiting for more details on the deal. 

Meanwhile, data on Friday painted a mixed picture of Canada’s labor market. The economy added 7,400 jobs compared to the forecast of 4,100. However, the unemployment rate jumped from 6.7% to 6.9%, indicating weakness. 

This week, all focus will be on the US consumer and wholesale inflation reports. These will shape the outlook for Fed rate cuts.

USD/CAD key events today

Maret participants do not expect any key economic reports from the US or Canada. Therefore, they will watch US trade policy developments.

USD/CAD technical forecast: Bulls eye 1.4050 after range breakout

On the technical side, the USD/CAD price has broken out of its consolidation area and is now targeting higher levels. The range area was made up of the 1.3775 support and the 1.3900 resistance. The price paused after a downtrend. 

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However, after a long battle, bulls have finally won, pushing the price above the 1.3900 resistance. Moreover, the price pulled back to retest the recently broken level before climbing higher. Currently, USD/CAD trades well above the 30-SMA, with the RSI in the overbought region, indicating a solid bullish bias. 

If this trend continues, the price will soon retest the 1.4050 key level. The bias will remain bullish as long as the price maintains its position above the SMA and the RSI above 50.

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