USDCAD appears to hold onto the gains made as the US dollar (USD) rises as traders expect the Fed to adopt a less dovish position. This is because Donald Trump is expected to follow through on his campaign pledges to implement significant tariffs, such as a 10% purchase gain and decreased corporate taxes.
US Consumer Helped US Dollar Bulls
Trump's fiscal strategy may increase investment, expenditure, and employment demand, raising inflationary pressures. This might lead the Federal Reserve to tighten monetary policy. Fed Chair Jerome Powell, on the other hand, mentioned on Thursday that he does not think Trump's possible return to the White House will impact the Fed's immediate policy choices.
The preliminary University of Michigan Consumer Sentiment Index increased from 70.5 in October to 73.0 in November, surpassing the market's forecast of 71.0. As a result of this positive data, the greenback has generally strengthened.
Given that Canada is the biggest oil exporter to the US, the decline in the value of the commodity-linked Canadian dollar (CAD), which may be due to reduced crude oil prices, could also help the USDCAD pair rise.
Crude Oil's Outlook
The price of West Texas Intermediate (WTI) Oil is down for the second day in a row, as China's most recent stimulus plans have let investors down. Furthermore, after worries about possible supply interruptions from Storm Rafael in the US Gulf of Mexico subsided, oil prices have also decreased.
Technically, WTI is trading at critical trend line support, from which valid downside pressure might come after breaking below the October low.
Is The Trump Trade Sentiment Over?
The FOMC indicated that the possibility of higher prices under a Trump administration would not materially change their inflation projection. The bond market benefited from the Fed's dovish position, as 10-year yields increased by 2 BSP and the 2-year yields by 9 basis points.
Over the past few days, Trump has stepped up his challenging stance on illegal immigration and tariffs—two policies that may cause inflation. Decreasing immigration would negatively impact the labor market and drive up wages, while tariffs would probably raise tax rates.
Trump is also anticipated to renew the provisions of the Jobs Act and Tax Cuts and move for more tax cuts, which could exacerbate the already overheated economy.
USDCAD Technical Analysis
In the daily chart of USDCAD, the ongoing bullish pressure is potent, from where a continuation strategy could provide a decent trading opportunity.
In the major market structure, the 200 day Simple Moving Average is below the 50 day EMA, while both lines are below the current price. As long as these dynamic lines are below the current price, we may expect the bullish momentum to continue.
Based on this outlook, investors might find it as a continuation momentum as the recent price holds the interest at the July 2024 high. Any bullish rebound from the 50 day EMA line could offer a trend trading opportunity, aiming for the 1.4000 psychological line.
On the other hand, a failure to hold the price above the 1.3841 static support could initiate a consolidation, which might lower the price below the 200 day SMA line.
