Buying remains unabated amid tariff jitters, ahead of US NFP

• USD/CAD gains positive traction for the seventh straight day amid a combination of negative factors.
• Trump’s 35% tariffs on Canadian imports and the BoC dovish pause continue to weigh on the CAD.
• The USD climbs to a multi-month top amid the Fed’s reluctance to cut rates and supports the major.
• Spot prices remain on track for the worst weekly performance since February ahead of the US NFP.

The USD/CAD pair prolongs its uptrend for the seventh consecutive day and climbs to its highest level since May 22, around the 1.3875 region during the first half of the European session on Friday. The Canadian Dollar (CAD) takes a hit in reaction to US President Donald Trump’s executive order to raise tariffs on Canadian goods from 25% to 35%. The White House also announced a 40% transshipment tariff on goods rerouted through third countries to avoid the duties. Given that about 75% of Canada’s exports go to the US, the development dampens the outlook for Canadian exports and could weigh on the domestic economy. This comes on top of the Bank of Canada’s (BoC) dovish pause earlier this week, which, along with subdued Crude Oil prices, continues to undermine the commodity-linked Loonie and acts as a tailwind for the currency pair.

 

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The US Dollar (USD), on the other hand, climbs to its highest level since late May amid the Federal Reserve’s (Fed) hawkish tilt on Wednesday and turns out to be another factor lending support to the USD/CAD pair. The US central bank, as expected, kept its benchmark interest rate unchanged for the fifth consecutive meeting, in a range of 4.25% to 4.5%, despite intense pressure from Trump and his allies to lower borrowing costs. Adding to this, the committee had a more optimistic view and noted that the economy continued to expand at a solid pace. Moreover, Fed Chair Jerome Powell said that the current modestly restrictive monetary policy has not been holding back the economy, and is in the right place to manage continued uncertainty around tariffs and inflation. Powell added that it was too soon to say whether the Fed would cut rates in September.

On the economic data front, the US Bureau of Economic Analysis reported on Thursday that the Personal Consumption Expenditures (PCE) Price Index climbed to 2.6% in June from 2.4% in the previous month (revised up from 2.3%). Meanwhile, the core gauge, which excludes volatile food and energy prices, rose 2.8% during the reported month, matching May’s reading and surpassing the consensus estimate of 2.7%. The data reaffirmed the view that price pressures would pick up in the second half of the year and might force the Fed to delay the rate-cutting cycle until at least October. This favors the USD bulls and backs the case for a further appreciating move for the USD/CAD pair. Traders now look to the US Nonfarm Payrolls (NFP) report for a fresh impetus. Nevertheless, spot prices remain on track to register the worst weekly performance since late February.

USD/CAD daily chart

Technical Outlook

The intraday move higher pushes the USD/CAD pair beyond the 100-day Simple Moving Average (SMA) for the first time since April. This, along with positive oscillators on the daily chart, validates the near-term constructive outlook for spot prices. Hence, a subsequent strength beyond the 1.3900 mark, towards testing the next relevant hurdle near the 1.3950 region, looks like a distinct possibility. The momentum could extend further towards reclaiming the 1.4000 psychological mark en route to the 1.4015 supply zone.

On the flip side, any corrective pullback below the 1.3860-1.3855 region (100-day SMA) could be seen as a buying opportunity around the 1.3800 mark. This should help limit the downside for the USD/CAD pair near the 1.3760-1.3750 horizontal resistance breakpoint. The latter should act as a strong near-term base, which, if broken decisively, could prompt some technical selling and drag spot prices to the 1.3700 round figure en route to the 1.3670 region and mid-1.3600s.