The Canadian elections have revealed that its citizens prioritize the country’s sovereignty over economic stability. The future of the USDCAD pair will depend on the extent of the economic challenges. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The Liberal Party has won the Canadian election.
- Canada has no intention to retaliate in a tit-for-tat manner.
- Beneath its stability, the US dollar remains vulnerable.
- Consider selling the USDCAD pair during upward pullbacks with targets at 1.362 and 1.326.
Weekly Fundamental Forecast for Canadian Dollar
Donald Trump urges Americans to endure short-term hardship for long-term prosperity. Canadians have elected Mark Carney as they are prepared to accept economic sacrifices to preserve sovereignty. The Liberal Party remains in power for a fourth term, as the former head of two central banks focused his election campaign on the fight for independence rather than tax cuts, unlike his Conservative opponents.
The victory of the Liberal party was largely anticipated, as it had been leading in the polls for a long time. However, 169 out of 343 seats in parliament were not enough to secure a majority. Mark Carney will have to form a coalition, which will complicate his confrontation with Donald Trump.
Canadian Political Parties Polling Trends
Source: Bloomberg.
The Canadian Prime Minister has stated that there is no necessity for Canada to rush into trade negotiations with the US. Ottawa has enough power to wait longer. Mark Carney has ruled out a symmetrical retaliation strategy. He asserts that the primary objective is to inflict maximum damage on the US through the implementation of retaliatory tariffs while ensuring that the impact on Canada’s economy is minimized.
A gradual and consistent approach often yields the best results. The head of government’s measured strategy is being adopted by other officials. In April, the Bank of Canada decided to maintain the overnight rate at 2.75%, while Finance Minister François-Philippe Champagne indicated that policymakers are closely monitoring signs of an economic slowdown due to US tariffs.
MUFG envisions long-term economic risks that may require the Bank of Canada to resume its monetary expansion cycle. It does not believe that the recent strengthening of the loonie is based on solid fundamentals. Citigroup forecasts the USDCAD pair to rally to 1.45 should the trade tensions between Washington and Canada escalate.
G10 Currency Performance Following Donald Trump’s Inauguration
Source: Bloomberg.
Conversely, USDCAD bears believe that the long-term uptrend will reverse because of the weakness of the US dollar. Thus, UBS has revised its forecast downward from 1.4 to 1.3, citing the damage to the US economy caused by tariffs. At the same time, Deutsche Bank predicts a rate of 1.25, the lowest since 2022, claiming that import duties and the reassessment of Washington’s role in international relations will destroy the greenback.
Weekly USDCAD Trading Plan
The US dollar’s stability amid rising stock indices masks its underlying vulnerability. As soon as the S&P 500 index falls due to the economic slowdown, sell-offs in the USDCAD pair will likely resume. Discouraging GDP and labor market statistics in the US may be a signal to open short trades. However, US inflation deceleration may support USDCAD bulls. In this case, consider short trades during upward pullbacks with the targets at 1.362 and 1.326.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of USDCAD in real time mode
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