Chris looks at the USD/CAD currency pair as the Trump Administration is now levying 25% tariffs on the Canadians, with the energy having only 10%. At this point, it will be interesting to see how the market reacts to this, but there is a great chance that this pair will jump immediately.
Ultimately, we are at a major inflection point for this currency pair. The forex markets are expected to be highly volatile, with the CAD serving as the focal point for the start of the week. This pair also will have the added noise of employment figures coming out of both countries on Friday.
Looking at the Canadian Dollar
I think at this point, the Canadian dollar needs to put up a fight. If the 1.4750 level is breached to the upside, the USD/CAD will accelerate towards at least the 1.50 level. I have no interest in shorting this pair, but if it broke back down despite the tariffs, perhaps closing below the 1.42 level—this is something that you cannot ignore.
However, I find Canadian dollar strength a difficult thing to imagine. After all, the Parliament isn’t even in session, as the Canadian government is essentially dysfunctional. The question then would be, what will they decide to do? There are murmurs of retaliation against those tariffs, but at the end of the day, there isn’t a lot of ammunition north of the border.
I suspect this won’t last too long, but it will be a shock. With the interest rate differential being massive at this point, there really isn’t a reason to short this pair, but at the end of the day, we have to follow the markets. I believe we will find 1.4750, and then 1.50 after that at this point in time.