The Canadian dollar (CAD) strengthened slightly against the U.S. dollar in recent days, but its gains were limited as investors weighed the impact of an upcoming Canadian federal election and potential new U.S. trade tariffs. The loonie edged 0.15% higher to 1.4275 per US Dollar - its strongest level since March 18.

Key Drivers Behind CAD’s Performance

1.  U.S. Trade Tariff Speculation :

Market participants are closely watching the latest trade policy developments from the United States. President Donald Trump indicated this week that automobile tariffs are "coming soon," though he suggested that some countries could receive exemptions. Given Canada’s strong reliance on auto exports, this uncertainty has kept the loonie from rallying further. A full-scale imposition of tariffs would negatively impact Canada’s trade balance, making CAD vulnerable to additional downside pressure.

2. Canadian Election Uncertainty

The tightly contested federal election adds another layer of uncertainty to the market. With Prime Minister Mark Carney shifting toward a more pro-business stance, investors are closely monitoring polling data to assess potential policy shifts. A stable, business-friendly government could support CAD in the medium term, while political uncertainty could weigh on sentiment.

Technical Outlook: USDCAD at a Key Inflection Point

USDCAD remains range-bound within key technical levels.

Resistance Levels:

1.4332 – Tuesday’s high

1.4369 – Daily Ichimoku cloud base

1.4401 – March 1 high

Support Levels:

1.4271 – Tuesday’s low

1.4265 – Rising 100-day moving average (DMA)

1.4251 – Lower bound support

A break above 1.4332 could see USDCAD extend its gains toward 1.4401, while a move below 1.4265 would expose the  USDCAD pair to further downside risk.

Oil Prices and CAD Correlation

Oil prices, a key driver for the Canadian dollar, fell 0.6% to $68.72 per barrel after hitting a three-week high. While higher oil prices typically support CAD due to Canada’s status as a major crude exporter, the loonie’s muted reaction suggests that election and tariff concerns are currently outweighing commodity price movements.

Market Outlook: What’s Next for CAD?

In the short term, CAD will remain sensitive to political headlines and tariff developments. If the U.S. trade stance softens and Carney’s pro-business shift gains traction, CAD could test higher levels. However, sustained uncertainty around the election and global trade risks may limit upside momentum.

Traders should keep an eye on polling updates, potential U.S. tariff announcements, and oil price movements for further directional cues on the loonie.