Canadian Dollar Insights:
- The beginning of December has shown a significant upward trend for USD/CAD, largely influenced by statements from President-elect Trump regarding the imposition of 25% tariffs on Mexico and Canada made in late November.
- Initially addressing concerns about migration and drug trafficking, Prime Minister Trudeau's visit to Florida aimed to clarify the situation, yet Trump's humorous remarks suggesting Canada could join the U.S. as its 51st state have garnered media attention, framing the delicate negotiations as we approach the inauguration.
- Recently, provincial leaders, particularly Ontario's Doug Ford, have hinted at retaliatory measures by potentially cutting or halting exports of essential resources like minerals, metals, oil, and electricity.
- This threat has not been supportive of the markets, leading to USD/CAD soaring to a new four-year high, showcasing further weakening of the Canadian Dollar.
The past month has seen dramatic fluctuations in U.S.-Canadian relations. Following President-elect Trump’s rising poll numbers in late October and November, USD/CAD progressively weakened from a low of 1.3420 in September to a high of 1.3959 just before the election. This consistent downward trajectory mirrored a broader pattern observed in the pair over the previous four years.
Post-election developments have been striking, with USD/CAD crossing the significant psychological threshold of 1.4000 for just the third time in two decades. The mid-week rate cut by the Bank of Canada by 50 basis points initially led to a temporary increase in CAD value; however, this trend quickly reversed. As I noted soon after, the prevailing strength in USD/CAD continues to dominate, resulting in a fresh four-year peak.
USD/CAD Monthly Chart
Market Sentiment Towards Uncertainty
During the aforementioned rate cut announcement, Bank of Canada Governor Tiff Macklem identified the potential tariffs on Canada as a “major new uncertainty.” His comments revealed the unpredictable landscape ahead—whether tariffs will be enacted, exemptions will be negotiated, or retaliations will occur is still unclear. This ambiguity appears to be influencing market behavior as investors lean towards USD, anticipating the potential for tariffs that could negatively impact the Canadian economy.
A crucial question remains: Would a weakened Canadian economy serve the best interests of the United States in the long run?
USD/CAD Maintaining an Upward Trend
A notable parallel can be drawn to the U.S. Dollar's behavior following the 2016 election, where both the U.S. Dollar and equities experienced an impressive rebound. However, by 2017, the U.S. Dollar faced a stark reversal, despite stocks continuing to rise. During that time, President Trump remarked about the dollar being ‘too strong.’
It seems likely that President-elect Trump may prefer a weaker U.S. Dollar, considering his previous statements regarding national debt. Looking ahead, the potential trading range of USD/CAD may become a focal point for next year.
Currently, the trend points upwards for USD/CAD, supported by a series of higher highs and lows. Traders focused on shorter timelines may look for support at previous resistance points, notably around 1.4200 and 1.4100, which could signal opportunities as the market evolves.
As we enter December, bulls are defending the 1.4000 level, but for a continuation of the current range pattern, these levels, along with 1.3950, need to be assessed. A breach by bears at these points could indicate a shift, potentially impacting bullish strategies in the short term.
USD/CAD Daily Price Chart
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