The USD/CAD exchange rate has crashed, forming a death cross pattern ahead of the upcoming Canadian election. It has plunged from a high of 1.4795 earlier this year to 1.3900.
Canada election ahead
The USD to CAD exchange rate has been in a strong downtrend over the past few weeks due to the decline in the US dollar index (DXY).
The key catalyst for the pair will be next week’s Canadian election on April 28. This election will be a contest between Mark Carney, the current Prime Minister, and Pierre Poilievre.
Analysts anticipate that Carney’s Liberal Party will win because of the recent trade skirmish with the United States. Before the trade war, Poilievre was expected to win because of Justin Trudeau’s low approval ratings.
As such, many Canadians see the election as a referendum on who can handle Trump better. Carney has vowed to be tough on Trump and not to cave in. While Poilievre has also vowed to protect Canada’s interests, many Canadians expect him to be softer on Trump.
Trump has implemented tariffs on Canadian goods, ending the USMCA deal that he negotiated in his first term. Most Canadian goods are being charged a 25% tariff on most goods from the United States.
Trade worth $923B to be disrupted
These tariffs are affecting goods worth over $923 billion. The US exports goods valued at over $441 billion to Canada and then imports about $482 billion. Excluding energy, the US has a trade surplus with Canada.
The USD/CAD pair will likely react mildly to the election results since the current policies will continue.
However, the most notable difference will be a Poilievre victory since he has vowed to implement some policy changes, including reducing income tax to 12.75%, increasing tax-free savings account contributions by $5,000, and deferring capital gains taxes if reinvested in the country.
Economists expect that the Bank of Canada (BoC) will continue cutting interest rates later this year as inflation continues falling. Recent data show that the headline Consumer Price Index (CPI) dropped from 2.6% in February to 2.3%.
The BoC has been cutting interest rates, moving from a high of 5% to 2.75%. It may continue cutting rates this year.
The USD/CAD pair has also declined due to the recent decline in the US dollar index. It has dropped from $110 earlier this year to below $100.
USD/CAD technical analysis
USD/CAD chart by TradingView
The daily chart shows that the USD/CAD exchange rate has dropped from a high of 1.4795 in February to the current 1.3900.
It has dropped below the 50% Fibonacci Retracement level at 1.3940. Also, the pair has formed a death cross pattern as the 50-day and 200-day Weighted Moving Averages (WMA) have crossed each other.
The pair has formed a bearish pennant pattern, which is characterized by a vertical line and a triangle pattern. Therefore, the pair will likely continue falling as sellers target the key support at 1.3735, the 61.8% retracement point.
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