Canadian Dollar: Trade Tensions Threaten Its Recovery Against USD - OCBC

USD/CAD is currently trading near 1.38325, with the Canadian dollar's recent rebound momentum facing a test. OCBC analysts Sim Moh Siong and Christopher Wong warn that re-escalating US-Canada trade tensions could undermine the loonie's recent recovery, putting renewed upward pressure on the exchange rate.

**Trade Factors Reassert Dominance**

According to market reports, trade negotiations between Canada and the US have hit snags, with tariff-related headlines heating up again, and the Canadian dollar reacting visibly to the news. Analysts note that if the trade standoff persists, the rebound foundation of the CAD, a trade-sensitive commodity currency, will be eroded. The loonie had previously benefited from improved risk sentiment, but trade uncertainty is now re-emerging as the dominant variable.

**Policy Expectations and Data Intertwine**

Beyond trade factors, markets are also focusing on the Bank of Canada's future policy path and US economic data performance. The Federal Reserve will release its latest rate statement this week, with markets broadly expecting rates to remain unchanged. OCBC analysts believe that amid intertwined trade tensions and policy expectations, the Canadian dollar lacks a sustained strengthening catalyst in the near term, and USD/CAD may maintain a high-level range-bound pattern.

**Short-Term Risks Skew to the Upside**

From a technical perspective, USD/CAD is trading around 1.38325, and if trade tensions escalate further, the pair could retest higher levels. Analysts caution that the CAD's recent rebound was more of a technical correction, lacking sustained fundamental support, and investors should be wary of two-way volatility risks driven by trade headlines.