In a widely anticipated move, the Bank of Canada (BoC) executed a 25 – basis – point rate cut on March 13, 2025. This strategic decision brought the country’s policy rate down to 2.75%, as reported by Danske Bank’s FX analysts, Kristoffer Kjær Lomholt and Filip Andersson. This rate adjustment has significant implications for the Canadian dollar (CAD) and its exchange rate against the US dollar (USD), specifically in the USD/CAD currency pair.
Market Reaction and Trade – War – Related Concerns
The BoC’s meeting, while eventful in terms of the rate cut, did not trigger a major market upheaval. The central bank’s focus on the uncertainty and potential impacts of a trade war with the United States was a key factor in tempering market reactions. Alongside the rate cut announcement, the BoC released survey data. This data painted a concerning picture, revealing that the threats of new tariffs and the overall ambiguity surrounding the trade war were already taking a toll on both consumer and business confidence in Canada.
BoC Governor Macklem issued a cautionary statement, highlighting the limitations of monetary policy in countering the effects of a trade war. He emphasized that the severity of new US tariffs on Canada would depend on their scale and how long they remained in place. This statement further underlined the importance of trade relations in shaping the economic and currency – market landscape.
Outlook for USD/CAD: A Bearish Short – Term Projection
Based on current market conditions, Danske Bank’s analysts maintain their prediction that the USD/CAD currency pair will trend downward in the short term, with a target of reaching the 1.41 level. The analysts cite two primary factors contributing to this forecast. Firstly, the CAD’s positioning in the market is currently short – stretched, which could set the stage for a rally. Secondly, they anticipate further weakening of the USD.
An additional factor that could boost the CAD is the potential easing of US tariffs on Canada. If this were to occur, it would act as a significant positive catalyst for the Canadian dollar, potentially accelerating the downward movement of the USD/CAD pair towards the projected 1.41 level. For investors monitoring the currency markets, these insights from Danske Bank offer valuable guidance for short – term trading strategies involving the USD/CAD pair.
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