USD/CAD Price Forecast: Strives to extend advance above 1.3740

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The USD/CAD pair holds onto weekly gains near 1.3700 during the early European trading session on Tuesday. The Loonie pair trades firmly as the US Dollar (USD) extends its recovery move, with the US Dollar Index (DXY) extending its recovery move to near 97.80 at the press time.

USD/CAD trades firmly near the weekly high around 1.3700 amid firm US Dollar.
US President Trump threatens higher tariffs if countries dishonour recent trade deals.
Investors await the Canadian Q4 GDP data.

The Greenback demonstrates strength despite fresh tariff threats from United States (US) President Donald Trump. On Monday, Trump threatened steeper levies if countries explore benefits of Supreme Court’s (SC) blocked tariff policy, which was backed by the economic emergency law, through a post on Truth.Social.

"Any Country that wants to ’play games’ with the ridiculous supreme court decision, especially those that have ’Ripped Off’ the U.S.A. for years, and even decades, will be met with a much higher Tariff, and worse, than that which they just recently agreed to. BUYER BEWARE!!!" Trump wrote.

On the monetary policy front, traders remain confident that the Federal Reserve (Fed) will not cut interest rates in its March and April policy meetings.

Meanwhile, the Canadian Dollar (CAD) trades broadly calm amid higher oil prices due to US-Iran tensions. Rising oil price leads to higher foreign inflows into the Canadian economy, given that the nation is the largest oil exporter to the US.

On the domestic front, investors await the Q4 Gross Domestic Product (GDP) data, which will be published on Friday.

USD/CAD technical analysis

USD/CAD trades flat at around 1.3700 at the press time. Price holds above the 20-day Exponential Moving Average, which has begun to slope higher, and signals a nascent recovery in trend, which could extend if it breaks above the January 27 high of 1.3740.

Initial support aligns with the 20-day EMA at 1.3671, while a daily close back beneath the average would leave the pair vulnerable to renewed consolidation.

The 14-day Relative Strength Index (RSI) wobbles inside the 40.00-60.00 range, indicating a muted momentum.

(The technical analysis of this story was written with the help of an AI tool.)

US Dollar FAQs

What is the US Dollar?

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

How do the decisions of the Federal Reserve impact the US Dollar?

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

What is Quantitative Easing and how does it influence the US Dollar?

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

What is Quantitative Tightening and how does it influence the US Dollar?

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.