USD to CAD Forecast after tariff war started and its Impact

A new late-night tariff conflict has started between the United States and Canada, changing the outlook for an important currency pair: the U.S. dollar and the Canadian dollar.

A New Trade Environment

The tariff war has brought never-seen-before uncertainty to North American commerce. Now that tariffs have been slapped on Canadian imports, Canada’s export-reliant economy contends with major headwinds. The increase in goods prices will make it difficult for the US market to compete. This impairs Canada’s trade balance while reducing the Canadian dollar’s value.

The impact is immediate and twofold. First, higher costs are impinging on profit margins and limiting overall economic growth for Canadian manufacturers and exporters. Second, investor sentiment is changing. With uncertainty building, many investors are flocking to the US dollar, a conventional safe-haven asset, raising its attractiveness compared to the Canadian dollar.

Underpinning Implications for the Currencies

Canadian Economic Challenges

Canada’s economy is very much a slave to changes in how the world's trade works. The tariffs would target import he way the world trades. Tariffsces and technology. With export revenues down, the Canadian economy could slow, which may lead to a more dovish monetary stance from the Bank of Canada.

In addition, diminished investor confidence can lead to capital outflows. When Canadian assets are judged to carry a greater risk, investors shift those funds to less volatile markets. This development contributes to the depreciation in the loonie and increases the volatility of USD to CAD exchange rate.

US Dollar Resilience

In contrast, the US dollar enjoys the advantages of being a global reserve currency and a safe-haven asset in times of economic stress. When global uncertainties increase, especially, capital flows to US, where economic fundamentals and fiscal policies stand FIRM With data for the last month in October 2023. With trade tensions intensifying and with investors increasingly favouring the US dollar, the gap between the two currencies is expected to widen even further.

Amidst the current backdrop, as Canada faces such economic headwinds, it appears likely that the strength of the US dollar may be further reinforced, leading to a bullish outlook on the USD to CAD pair in our near term.

Technical Analysis: The Market One Sheet

Even as fundamentals set the scene, technical analysis offers clues about market psychology and turning points. After analyzing the charts, certain dynamics, patterns, and indicators stand out determining the direction of the USD to CAD pair.

Chart Patterns and Key Levels

ASCENDING TRIANGLE One of the major technical patterns we will explore is the ascending triangle. This pattern has been developing for some time, characterized by an upward sloping sets of lows and horizontal resistance at 1.3946. The triangle signals accumulation of buying pressure and that the breakout could happen soon. If the pairs breaks 1.3946, it may reach some levels around 1.55 – 1.60. On the other hand, if prices go below the dynamic support at around 1.3164, we could enter a more bearish scenario.

Key Technical Indicators

Multiple technical indicators provide better insight into current market sentiment:

●    Moving Averages (MA): The USD to CAD is currently above its 50–day and 200–day moving averages. These moving averages act as a dynamic support, which gives the impression that, while pressured in the short term, the longer-term trend still has a bullish component.

●    MACD and RSI: The MACD is close to the zero line, indicating indecision in the market. At the same time, the Relative Strength Index (RSI) has remained around 50 following a spell near the sideways direction. Bullish divergences in the RSI that occur sporadically indicate the possibility of building interest in purchasing and could provide early warning signs for a reversal.

●    Candlestick Reversal Patterns: The Morning Star and Hammer are among the patterns observed at strategic support levels. These formations can signify temporary price corrections, giving traders the chance to take positions when they believe the pair to be oversold.

These technical factors combined indicate that although the USD to CAD pair is currently in a consolidation cycle, the price action is likely to sharply move after market participants have digested the full impact of the tariff war.

When looking at USD to CAD forecasts, it's important to consider time horizons.

Recent Sentiment Analysis: Break down the outlook for the USD to CAD pair into short-, medium- and long-term outlooks broken down by impact factors.

Short-Term Forecast

In the short term, the pair is expected to face high volatility. Key drivers include:

●    Nomination Report: Forthcoming updates/changes in the tariff regime can lead to a spurt in prices.

●    Economic Data: Ongoing GDP, employment, and inflation reports from either country will move markets.

●    Technical Breakouts: A breakout above the current range at 1.3164 to 1.3946 will be important to determine the next trend.

For those trading shorter timeframes, be ready for choppy markets and a close eye on both news events and technical signals for quick profit opportunities.

Medium-Term Outlook

As the market adapts to the new trade realities, the medium-term outlook entails a wider range of potential outcomes. Analysts reckon that the USD to CAD could fluctuate over the next year between 1.2500 and 1.4400. Two scenarios emerge:

●    Bearish Scenario: More downside pressure on the economy could keep CAD weak for an extended period. The CAD also may sink further if Canadian exports stay muted and confidence does not pick up.

●    Positive Reversal: On the other hand, if trade tensions subside or Canadian economic data surprises to the upside, the CAD may bounce. This could drive the exchange rate up further and close the gap with the USD.

The market eye is on trade policy and economic performance the medium-term outlook is uncertain.

Trading Strategies for a Volatile Market

In this environment of uncertainty, customized trading strategies are necessary to manage the risk on USD-CAD.

For Short-Term Traders

Scalping and Intraday Trading: Fast-moving prices create opportunities for quick trades. Focusing on key technical levels like 1.3164 and 1.3946 and having tight stop-loss orders can help traders book intraday profits.

For Swing Traders

Candlestick Reversal Setups: Candlestick reversal formations like the Morning Star or Hammer at key support levels provide potential entry signals. These formations, when combined with momentum indicators such as MACD and RSI, allow for spotting when the pair will change behavior, action, trend, etc.

Momentum Confirmation: As signals for potential longs, watch for bullish divergences in the RSI or a change in MACD trends. On the other hand, bearish confirmation could open up long opportunities on the pair.

For Long-Term Investors

Fundamental Positioning: When creating a long-term strategy, it can help to start with macroeconomic trends. In the meantime, a long-term bullish view on the USD may be warranted if the US economy continues to outshine Canada in the wake of the trade dispute.

Conclusion

The tariff war has changed the dynamics for the USD to CAD pair. With Canadian economic fundamentals under stress, while technical are signaling a potential key breakout, traders and investors will want to be prepared for increased volatility. In the medium to long term, the direction of the pair will depend on whether the tariff standoff leads to a permanent trade distortion or gives place to a rebalancing of economic relations.