CAD – USD/CAD breaks below technical support, continues to decline and test lower levels

Canada announced on Tuesday retaliatory tariffs on approximately $20 billion worth of U.S. imports, covering about 700 products with rates of 15%, 25%, and 50%. This follows the U.S. imposing a new 50% tariff on $20 billion worth of Canadian imports. Trump also threatened to rename Lake Ontario, which straddles the border between the two countries, to "Lake America" ​​and announced that tariffs on all Canadian cars, trucks, auto parts, and steel would be raised to 50% starting in 2027. This tit-for-tat trade war marks a new low in the relationship between the two long-time allies. More notably, the Trump administration is discussing imposing additional trade penalties on Canada.

The escalating U.S.-Canada tariff war is pushing the USD/CAD stronger; however, further upside potential is limited by weak fundamentals in the US dollar itself; the U.S. Treasury's expansion of long-term Treasury bond buybacks has raised concerns about fiscal discipline.

The USD/CAD pair has been testing lower levels for over a month, breaking below both the 100-day and 250-day moving averages. The weakness is expected to continue, with the pair trading within a downtrend channel. Further targets are seen at 1.3750 and 1.3640, with the next levels at 1.3550 and 1.35. Resistance will be seen at the 250-day moving average at 1.3870 and 1.3960, with stronger resistance expected at 1.4030 and 1.4080.

Forecasted range:
Resistance: 1.3870 – 1.3960 – 1.4030 – 1.4080
Support: 1.3750 – 1.3640 – 1.3550 – 1.3500

This Week's News Highlights:
Canada to release retaliatory tariffs on the U.S.on Tuesday

Focus:
Thursday:
Canada's Q2 Current Account (20:30)
Friday:
Canada's Q2 GDP (20:30)

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