USD/CAD Price Forecast: Bulls not ready to give up yet amid trade war fears

• USD/CAD draws support from a combination of factors, though bulls seem non-committed. 
• Rebounding US bond yields revive USD demand and act as a tailwind amid weaker Oil prices.
• Trump’s tariff threats weigh on the Loonie and support prospects for further near-term gains.

The USD/CAD pair remains depressed for the second consecutive day on Thursday, albeit it manages to hold above the 1.4000 psychological mark through the early European session. The Energy Information Administration (EIA) reported a surprise jump in US gasoline inventories, raising worries about fuel demand in the world's top Oil consumer. Furthermore, the reduced risk of supply disruptions from the Middle East keeps Crude Oil prices depressed near the weekly low. Apart from this, US President-elect Donald Trump's plans to impose big tariffs on all products coming into the US from Canada undermines the commodity-linked Loonie. This, along with the emergence of some US Dollar (USD) dip-buying, turned out to be key factors offering some support to the currency pair. 

US macro data released on Wednesday pointed to a resilient economy and stalling inflation progress, suggesting that the Federal Reserve (Fed) might be cautious about further rate cuts. In fact, the US Bureau of Economic Analysis (BEA) reported that the world's largest economy expanded at a healthy 2.8% annual pace in the third quarter and consumer spending rose by 3.5%. Furthermore, the US Personal Consumption Expenditures (PCE) Price Index climbed 2.3% on a yearly basis in October, while the core gauge – excluding volatile food and energy prices – edged higher to 2.8%. Separately, data published by the US Department of Labor revealed that the number of individuals filing new applications for unemployment insurance fell by 2,000 to 213,000 for the week ending November 22, pointing to a solid labor market.

This comes on top of hawkish FOMC minutes earlier this week, which showed that officials were divided over how much farther they may need to cut rates and could pause the easing cycle if inflation remained elevated. Moreover, investors seem convinced that Trump's expansionary policies will boost inflation and limit the scope for the Fed to cut interest rates further. This, in turn, triggers a modest bounce in the benchmark 10-year US Treasury yield from levels not seen in a month and revives the USD demand. Apart from this, geopolitical tensions stemming from the Russia-Ukraine war assist the safe-haven buck to rebound from a two-week low and lend support to the USD/CAD pair. That said, relatively thin trading volumes on the back of a holiday in the US might hold back bulls from placing aggressive bets. 

Technical Outlook

The 1.4000 mark nears the 200-hour SMA and should act as a key pivotal point for short-term traders. Given that oscillators on hourly charts are holding in negative territory, some follow-through selling could pave the way for an extension of this week's corrective pullback from the highest level since April 2020. The USD/CAD pair might then accelerate the fall towards the 1.3955 intermediate support en route to the 1.3925 region, or the weekly low. This is followed by the 1.3900 mark, which if broken could drag spot prices to the monthly trough, around the 1.3820-1.3815 zone.

On the flip side, sustained strength beyond the 1.4050 area should allow the USD/CAD pair to reclaim the 1.4100 mark. The momentum could extend further towards the multi-month top, around the 1.4175-1.4180 region, en route to the 1.4200 round figure, the 1.4265 region and April 2020 swing high, around the 1.4300 mark.

USD/CAD 1-hour chart