USD/CAD remains firm at approximately 1.4260, impacted by fears of potential tariffs from the US on Canada and Mexico. Recent inflation figures show Canada’s inflation has stayed below the Bank of Canada’s (BoC) 2% target for three months.

The US Dollar Index is slightly down, around 106.70, despite recovering earlier. President Trump reaffirmed plans for 25% tariffs on imports from both Canada and Mexico, which could negatively affect Canada’s economy.

The USD/CAD has broken from a Descending Triangle pattern, indicating a potential bullish trend. If prices exceed 1.4280, further resistance could emerge at 1.4300 and 1.4380.

Conversely, if the pair falls below 1.4151, it could reach lows of 1.4094 and 1.4020. The Canadian Dollar is influenced by BoC interest rates, oil prices, economic health, inflation, and trade balances, with higher interest rates tending to boost its value.

Considering the present conditions, it is evident that a few forces are shaping what we see with this currency pair. Inflation in Canada has remained below what policymakers at the BoC aim for, staying under 2% for three consecutive months. That alone suggests that tightening monetary policy might not be on the immediate agenda. However, we cannot ignore external pressures. Given what Donald has recently reaffirmed regarding tariffs, there is a real chance of trade disruptions, which could weaken business expectations up north.

That said, while the US Dollar Index has softened slightly to 106.70, it has demonstrated some ability to recover. This matters because changes in the wider strength of the dollar could play into shifts in the exchange rate. If investors continue to interpret what is happening as a reason to favour the greenback, we could see additional USD demand pushing values higher.

Technically, we have already seen a breakout from a Descending Triangle pattern. That suggests an upward push in price action that could carry the pair beyond 1.4280. If that happens, we would likely need to pay attention to barriers at 1.4300 and 1.4380, as those might inspire selling or hesitation among traders. On the other side, if for some reason the pair drops below 1.4151, the focus would shift towards levels at 1.4094 and even down to 1.4020.

At the heart of it all, the value of the loonie will keep reacting to several elements. The BoC’s stance on rates, broader economic health, trade relationships, and energy prices all factor into whether the Canadian currency gains or loses ground. Historically, higher interest rates have been a source of strength for it, making it more attractive compared to lower-yielding alternatives. However, if inflation remains low for an extended period, policymakers may not feel rushed to adjust borrowing costs, leaving the currency exposed to other forces in the meantime.

For those making decisions based on these movements, staying ahead of both political and central bank developments will be as important as reading the charts.