The U.S.-Canada tariff dispute has eased after Donald Trump said both countries have reached a deal, removing a significant overhang on the USD/CAD exchange rate.
In a Truth Social post, Trump announced a three-day delay to the previously scheduled 50% tariffs on roughly C$20 billion of Canadian goods, originally set to take effect on Wednesday. More critically, he stated that the two sides, pending final documentation, "have a DEAL!" The agreement appears to center on energy infrastructure, with Trump linking the tariff reprieve to the potential revival of the Keystone XL pipeline. The project, approved during Trump’s first term, was later canceled by the Biden administration. Its possible reinstatement could provide the U.S. with an alternative energy supply route amid stalled negotiations with Iran.
The tariff news has weighed on the Canadian dollar, with USD/CAD pulling back from minor horizontal resistance at 1.3910. The pair remains confined to a narrow range between that level and a support zone spanning 1.3870 to the 200-day moving average at 1.3851. Traders are now focused on these two levels as immediate reference points.
The risk of a resumption of the broader bearish trend in USD/CAD may be increasing following the tariff reprieve. A break below the lower end of the support zone could expose 1.3775, followed by a more significant support area around 1.3714, which corresponds to the 78.6% Fibonacci retracement of the September 2024 to January 2025 bull move. This level has acted as resistance multiple times this year.
On the upside, a sustained move above 1.3910 could target the 100-day simple moving average at 1.3919, where the price has encountered resistance in recent sessions. A break above that level would bring horizontal resistance at 1.3967 into play, followed by 1.3991 before the broader downtrend from July highs comes into focus.
Technical indicators still favor selling into strength. The 14-day Relative Strength Index (RSI) remains below 35, hovering just above oversold territory at 32, while the Moving Average Convergence Divergence (MACD) continues to trend lower in negative territory after crossing its signal line from above.
The next major fundamental catalyst for USD/CAD will likely be the release of the Federal Reserve’s July meeting minutes. Traders will scrutinize the minutes for signs of whether hawkish dissents from the meeting extended more broadly across the committee, particularly as Fed tightening expectations have softened following recent U.S. economic data.
