Canadian Dollar bears seem hesitant as weak USD counters US-Canada trade war

The USD/CAD currency pair faces hesitation despite a weak US dollar and concerns over a deepening US-Canada trade war. The pair currently trades just below the 1.3800 mark, marking a three-month low and ending a three-day losing streak. Following the imposition of 50% tariffs by the US on $20 billion worth of Canadian goods, Canada's response includes retaliatory tariffs beginning September 8.

This, combined with a slight decline in crude oil prices, negatively impacts the commodity-linked Loonie and supports the USD/CAD pair. Meanwhile, the US Dollar hovers near its lowest level in over three months, due to decreasing chances of a rate hike by the US Federal Reserve. Additionally, the US Treasury announced a doubling of buyback operations for long-dated government debt starting September, which adds pressure on US bond yields.

This further weakens the USD and caps the USD/CAD pair. Geopolitical tensions are also at play, with US Treasury Secretary Scott Bessent announcing sanctions against Iran, potentially acting as a tailwind for crude oil prices and the USD. Technical analysis indicates a bearish near-term bias for the USD/CAD pair, with the 200-day Simple Moving Average at 1.3844 acting as a significant hurdle.

A sustained strength may lift prices to the 50% retracement level at 1.3897, while a downward trend could reach the 78.6% retracement at 1.3698, followed by the prior swing low around 1.3549.