The USD/CAD pair has rebounded to approximately 1.4220, recovering from an earlier drop to around 1.4180. This recovery follows a resurgence of the US Dollar, despite weak US flash S&P Global PMI data for February, which indicated the first contraction in services activity in 25 months.

Concerns about potential 25% tariffs on Canada imposed by US President Trump are affecting the outlook for the Canadian Dollar. Following a delay in tariff implementation, Bank of Canada Governor Tiff Macklem noted that such tariffs could severely impact the economy.

The USD/CAD pair currently forms a Descending Triangle pattern. A dip below the February 14 low of 1.4151 could lead to further losses towards the December 9 low of 1.4094, while a rise above 1.4246 may push it towards 1.4300.

Several factors affect the CAD, including Bank of Canada interest rates, oil prices, economic health, inflation, and trade balance. Higher rates are typically beneficial for the CAD, while changes in oil prices directly impact this currency due to Canada’s reliance on oil exports.

Inflation data has a complex relationship with the CAD. Although inflation generally decreases currency value, increased inflation may prompt higher interest rates, enhancing CAD demand from foreign investors.

Economic data releases, including GDP and employment statistics, significantly influence the CAD’s value. Strong economic performance attracts investments, potentially leading to rate hikes and a stronger currency, whereas weak data could result in a decline of the CAD.

The USD/CAD pair has regained traction, moving back to around 1.4220 after dipping to 1.4180 earlier. This rebound comes even as the latest US flash S&P Global PMI figures for February painted a weak picture, marking the first contraction in services activity in over two years. Despite that, the US Dollar remains firm, suggesting that traders are pricing in other dynamics beyond just economic indicators.

Meanwhile, concerns surrounding trade policy continue to shape sentiment. With tariffs on Canada still in discussion, Tiff warns that if enforced, they could have severe repercussions for the economy. The delay in implementation has provided temporary relief, but uncertainty remains. As market participants weigh the risks, volatility in the Canadian Dollar is likely.

Looking at the technical setup, the Descending Triangle pattern is still in play. If price breaks below 1.4151—last seen on February 14—downside momentum may accelerate towards 1.4094, a level dating back to early December. Conversely, a move above 1.4246 might see the pair pushing towards 1.4300. Given the current price action, these levels serve as meaningful thresholds for potential moves in either direction.

The Canadian Dollar doesn’t move in isolation. The Bank of Canada’s rate decisions remain key, with higher rates historically lending support to the currency. Alongside that, oil prices carry outsized influence, as Canada’s resource-heavy economy ties closely to crude exports. Any spikes or declines in oil can have an immediate effect.

Inflation presents a more layered dynamic. Rising prices typically erode purchasing power, which could weaken the CAD. However, if inflation remains persistent, policymakers might be forced to raise rates in response, increasing demand as investors seek higher returns. Understanding this balance is key when assessing price movements.

Domestic economic performance plays a significant role as well. Strong GDP growth or robust labour market data can encourage inflows into Canadian assets, potentially lifting the currency. On the other hand, weaker figures may lead to speculation about rate cuts, weighing on the CAD. Given the upcoming data prints, traders should be prepared for fluctuations.

With key levels in focus and major themes unfolding in trade policy, central banking, and commodity prices, the next few weeks hold plenty of opportunity—but also risks—for those following this pair closely.