Trade Deal Hopes Send Canadian Dollar Tumbling

The Canadian Dollar experienced a significant downturn on Thursday, weakening by 0.66% against the resilient US Dollar. This decline marks a second consecutive day of losses for the Loonie, primarily fueled by growing market optimism surrounding potential trade deal advancements, particularly the recently announced agreement in principle between the United States and the United Kingdom.

While specifics remain scarce and no formal agreements have been signed, the news of a US-UK trade deal has injected a wave of positive sentiment into the markets. Investors are hopeful that this development signals a broader shift in the Trump administration’s trade policy, potentially leading to the dismantling of existing tariffs. This renewed optimism has broadly bolstered the US Dollar, casting a shadow over currencies like the Canadian Dollar.

Despite the overarching positive sentiment, trade tensions between Canada and the US persist, making a swift resolution on tariffs between the two nations seem unlikely. The US relies heavily on crucial imports from Canada, including automobiles, auto parts, light sweet crude oil, and essential crop fertilizers like potash, where Canada supplies a staggering 90% of US demand.

The Canadian Dollar’s weakness saw the USD/CAD pair surge to a multi-week high near 1.3930, marking a 1.23% climb over the past two days. Although the US Dollar had previously faced broad selling pressure following the announcement of “reciprocal” tariffs, the 1.3800 level appears to have established a temporary floor for the USD/CAD.

Looking ahead, the USD/CAD pair faces technical resistance around the 1.4030 mark, where the 200-day Exponential Moving Average (EMA) resides. Additionally, the 50-day EMA is on the verge of forming a bearish cross, which could suggest potential long-term downward pressure on the currency pair. Despite the current optimism surrounding trade deals, the path forward for the Canadian Dollar remains uncertain, heavily influenced by future trade policy developments and the intricate economic relationship between Canada and the United States.