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Loonie Faces Boom or Bust Scenario. Forecast as of 29.01.2025

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The USDCAD pair faced a roller coaster ride during Donald Trump’s inauguration, and these fluctuations are likely to persist. Will the US President impose 25% tariffs against Canada on February 1? Or will he postpone them? How will the Canadian dollar respond? Let’s discuss these topics and make a trading plan.

The article covers the following subjects:

Major Takeaways

  • Bank of Canada is ready for a sixth consecutive rate cut.
  • The USDCAD is waiting for the US President’s verdict on tariffs.
  • The duties will cost Ottawa CA$78 bln.
  • A delay in tariffs will send USDCAD quotes to 1.42.

Weekly Fundamental Forecast for Canadian Dollar

Canada is gearing up for a sixth consecutive key interest rate reduction. However, USDCAD bears are not overly concerned about this. The main focus is on the US. The country is considering a 25% tariff on imports from Canada, effective February 1. According to the Canadian Chamber of Commerce, this move, if implemented, is expected to slash Canada’s GDP by 2.6%, amounting to CA$78 billion or a yearly loss of CA$1,990 for each Canadian resident. The central bank will have to intervene to stabilize the situation.

All 14 experts of the Wall Street Journal forecast a reduction of the overnight rate from 3.25% to 3% at the BoC meeting on January 29. Three of them noted that the Bank of Canada may pause because of the uncertainty associated with the policy of Donald Trump. Laurentian Bank Securities believes the January cut will be the last for the foreseeable future. The regulator initiated the cycle of monetary expansion in June and has since reduced borrowing costs by 150 basis points.

This is more rapid than the Fed’s actions, which commenced in September with a decrease in the federal funds rate from 5.5% to 4.5%. The divergence in policy rates, coupled with a stronger US economy compared to Canada and the Fed’s more gradual approach to inflation control, has boosted the USDCAD pair by 8% on a yearly basis.

USDCAD Performance and US-Canada Rate Spread

Source: Bloomberg.

The introduction of tariffs by President Donald Trump has been a contributing factor to the weakening of the Canadian dollar. According to estimates by the Canadian Imperial Bank of Commerce, the imposition of 25% duties on imports will push the USDCAD pair to 1.5, while a 10% tariff will drag it to 1.46. Notably, speculators have increased their net short positions in the loonie, the most significant amount of short positions held among the G10 currencies.

Speculative Positions on Major Currencies

Source: Bloomberg.

Against this backdrop, the currency pair experienced a roller coaster ride, which began on the day of Donald Trump’s inauguration. Initially, USDCAD quotes declined significantly due to the duties he had promised on his first day in office, which were never implemented. However, Trump stated that he was prepared to introduce them on February 1.

Ottawa has pledged to retaliate by imposing tariffs on $150 billion of US imports. For example, 60% of crude oil and 27% of steel imports to the US come from Canada. The two countries’ ties in the automotive industry are so closely intertwined that it is unclear who has more to lose from the tariffs.

Weekly USDCAD Trading Plan

Should Donald Trump decide to postpone tariffs again, the US dollar will likely weaken against major world currencies, and the USDCAD pair will decline to 1.42. Against this background, one may consider opening short trades. However, if tariffs are implemented, the pair may soar to 1.46 and 1.49.


This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.

Price chart of USDCAD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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