USD/CAD Price Forecast: US-Canada Trade War Pressures Canadian Dollar

The Canadian dollar extended its weakness against the US dollar on Thursday, with USD/CAD trading at 1.38835. The pair had earlier edged higher to near 1.3886, with selling pressure on the loonie primarily stemming from escalating trade tensions between the US and Canada, which have heightened concerns over Canada's economic outlook.

**Trade Negotiation Uncertainty Dominates Market Sentiment**

US-Canada tariff talks have become a key variable influencing the exchange rate. Market reports indicate that the negotiation process has been fraught with setbacks, with some analysts noting that former President Trump has introduced new trade adjustment mechanisms in the talks, further adding to political uncertainty. This uncertainty has tilted market sentiment negative, with investors broadly expecting the Canadian dollar to remain under pressure due to the tariff dispute. In the near term, safe-haven demand for the US dollar has been boosted, while the Canadian dollar faces capital outflow pressures.

**Pair's Direction Depends on Subsequent Negotiation Progress**

Analysts suggest that if trade negotiations escalate further, USD/CAD could break above recent highs. Currently, the market is closely monitoring official statements from both the US and Canadian governments and the release of subsequent negotiation timelines. Any signals of a breakthrough or deadlock in the talks could trigger sharp volatility in the currency market. Some institutions recommend incorporating such political risk factors into quantitative trading models to capture the widening of trading ranges from unexpected events.