Photo by Michelle Spollen on Unsplash

The Canadian Dollar (CAD) rose to four-year highs against the US Dollar (USD) on Thursday, bolstered by a general weakening in Greenback demand. Markets are braced for a prolonged, drawn-out trade spat between the US and every other country as President Trump’s continuous about-facing on his own tariff proposals continues to drag down market sentiment.

Canadian Purchasing Managers Index (PMI) data from earlier this week showed a sharp contraction in business activity expectations, highlighting a growing undercurrent of economic weakness shooting through the Canadian economy. As the Canadian economy continues to grow lopsided, specifically in the face of rising tariffs from the US, the Bank of Canada (BoC) is poised to continue slashing interest rates, which could cap potential Loonie gains moving forward.

Daily digest market movers: US CPI inflation cools faster than expected, but tariffs could end that

• Core US CPI eased to 2.8% YoY in March, falling below 3.0% for the first time in years.

• Despite cooling inflation metrics, uncertainty remains high and trade tariffs are likely to send inflationary shocks through the US economy.
• The US is maintaining an across-the-board 10% “reciprocal” tariff rate, as well as a back-breaking 145% tariff on all Chinese goods imported into the US.
• Fed policymakers continue to warn that rate cuts may have to wait for far longer than market participants currently hope for.
• Key US consumer sentiment figures due on Friday will be a bellwether for inflation expectations heading into tariff season.

Canadian Dollar price forecast

The Canadian Dollar has been putting in work, climbing 2.26% bottom-to-top against the US Dollar over a two-day period and pushing the USD/CAD pair back below the 200-day Exponential Moving Average (EMA) near 1.4075 for the first time since last October. Market flows are largely concentrated in the Greenback, implying any reversal in sentiment will send the Loonie quickly spiralling back into consolidation territory.

USD/CAD daily chart

(Click on image to enlarge)

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