USD/CAD Rises to 2-Month High

Today, the USD/CAD exchange rate briefly exceeded the 1.3870 mark – the highest level seen this summer. In less than ten days, the US dollar has strengthened by over 2% against the Canadian dollar.

Why Is USD/CAD Rising?

Given that both the Federal Reserve and the Bank of Canada left interest rates unchanged on Wednesday (as expected), the primary driver behind the pair’s recent rally appears to be US President Donald Trump's decision to impose tariffs on several countries – including Canada:

→ Despite efforts by Prime Minister of Canada Mark Carney to reach an agreement with Trump, no deal was achieved;
→ Canadian goods exported to the US will now be subject to a 35% tariff;
→ The tariffs take effect from 1 August;
→ Goods compliant with the United States-Mexico-Canada Agreement (USMCA) are exempt.

Media analysts note that the tariffs are likely to increase pressure on the Canadian economy, as approximately 75% of the country's exports are destined for the United States.

USD/CAD Technical Analysis

At the end of July, the price formed a steep ascending channel (A-B), with bullish momentum confirmed by a decisive breakout above the 1.3790 resistance level, as illustrated by the arrow:
→ the pullback before the breakout was relatively shallow;
→ the bullish breakout was marked by a long bullish candlestick with a close near the session high;
→ following the breakout, the price confidently consolidated above 1.3790.

Provided that the fundamental backdrop does not undergo a major shift, bulls might attempt to maintain control in the market. However, the likelihood of a correction is also increasing, as the RSI indicator has entered extreme overbought territory.

Should USD/CAD show signs of a correction after its steep ascent, support might be found at:
→ line C, drawn parallel to the A-B channel at a distance of its width;
→ the previously mentioned 1.3790 level, which now acts as a support following the breakout.

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