Canadian Dollar Wobbles as Tariff Jitters and Volatility Cloud Outlook

The Canadian Dollar (CAD) began the week on shaky footing, fluctuating amid rising global trade tensions and lingering tariff uncertainties. The Loonie initially dropped by 0.6% against the US Dollar (USD) on Monday, before bouncing back toward opening levels near the 1.4200 handle, where it has remained stuck in a tight technical range.

Driving the volatility were renewed fears surrounding US trade policy. Market chatter briefly suggested a potential tariff extension from President Donald Trump’s administration. However, the President was quick to dismiss those rumors, reiterating his administration’s firm stance on reciprocal tariffs and signaling even additional tariffs—particularly a 50% increase on Chinese goods—following China’s retaliatory actions.

The Bank of Canada’s (BoC) most recent Business Outlook Survey, conducted in February, has further stoked caution. It found that a growing number of Canadian businesses are preparing for prolonged tariff-related disruptions. Many expect to face declining sales and rising prices, creating a ripple effect throughout the domestic economy. Though the survey does not reflect Trump’s latest tariff announcements from early April, analysts anticipate that upcoming data will paint an even bleaker picture.

Amid growing unease, Canadian consumers are becoming increasingly concerned about the possibility of a recession. The outlook has been clouded by not only tariff pressures but also broader concerns about US economic health—Canada’s largest trading partner.

Market attention is now turning to key US economic data releases scheduled for this week. Thursday’s Consumer Price Index (CPI) report and Friday’s Producer Price Index (PPI) and University of Michigan (UoM) Consumer Sentiment Index will be closely watched as markets seek clarity on inflation trends and consumer behavior in a post-tariff economic landscape.

Despite the intraday swings, the USD/CAD pair continues to hover within a familiar technical range. Resistance remains near the 50-day Exponential Moving Average (EMA) at 1.4300, while support is firm around the 200-day EMA near 1.4100. Until one of these barriers breaks, price action is expected to churn between the two levels.

From a broader perspective, several macroeconomic factors continue to shape the Canadian Dollar’s trajectory. The BoC’s interest rate policy remains central. Higher interest rates tend to support the CAD, while a dovish tilt—particularly amid trade headwinds—may weigh on it. Meanwhile, the price of Oil, one of Canada’s top exports, continues to exert significant influence. Rising oil prices generally boost the CAD due to increased export revenues and a more favorable Trade Balance.

However, inflation data is now playing an increasingly pivotal role. As central banks, including the BoC, weigh the risks of imported inflation caused by tariffs, investors are bracing for potential policy adjustments. Any signs of rising consumer prices could prompt the BoC to consider rate hikes, while weak inflation may lead to further easing.

In summary, the Canadian Dollar finds itself at a critical juncture, caught between tariff woes, economic uncertainty, and volatile technical levels. As global trade rhetoric intensifies, the CAD’s next move will likely depend on both domestic resilience and the evolving US-China trade narrative.