Forex Market Update: U.S. Dollar vs. Canadian Dollar – January 22, 2025

: George Solotarov; 22 November 2024; Hits: 17

Today, the USD/CAD pair experienced notable volatility as the Canadian dollar regained strength after initially trading weaker against the U.S. dollar. The fluctuations reflect market concerns and speculation surrounding potential U.S. trade policies and their impact on Canada’s economy.

Earlier in the day, the Canadian dollar fell to 1.4515 against the U.S. dollar, marking its lowest level since 2020. However, it recovered some ground, trading around 1.4340 by mid-afternoon. This shift comes as traders digest news about a possible 25% import tax on Canadian goods proposed by the U.S., set to be implemented in early February.

While the announcement initially pressured the loonie, skepticism over the actual implementation of such tariffs has provided some relief to the currency. Analysts have pointed out that imposing such a significant tax could have far-reaching consequences for trade and economic relations between the two countries, potentially stalling its approval.

Adding to the CAD's recovery is Canada’s relatively strong economic fundamentals. Recent data showing stability in oil prices—a key driver for the Canadian economy—has also supported the currency, offsetting some of the negative sentiment.

For the U.S. dollar, softer economic data is beginning to weigh on its performance. Expectations of a dovish Federal Reserve, combined with recent declines in U.S. retail sales and industrial production, have contributed to the greenback’s modest weakness against major currencies, including the Canadian dollar.

Outlook for Traders

The USD/CAD pair will likely remain sensitive to developments in U.S. trade policy and any additional commentary from policymakers on the proposed import tax. Traders should also monitor upcoming economic releases, such as inflation data and Federal Reserve statements, for clues on the dollar's future direction.

For Canadian dollar traders, energy market trends will continue to be a critical factor, as Canada relies heavily on oil exports. Stability or increases in crude oil prices could lend further support to the loonie in the coming days.