The Canadian dollar (CAD) saw a sharp gain against the US dollar on Thursday, August 20th, as its pair dropped 0.29% to 1.376 during the day. The biggest driver of the loonie’s power was geopolitical relief, as U.S. President Donald Trump postponed 50% tariffs on $20 billion of Canadian goods for a short term of three days to negotiate a deal. Moreover, the higher global oil prices, hotter Canadian inflation, and the general waning strength of the greenback provide further assistance for CAD.
The U.S. Dollar Index (DXY), tracking the dollar against six key currencies, was down 0.03% at 98.80 by press time.
Trump Pauses 50% Canada Tariffs For Three Days
In the last 48-hours, the USD/CAD recorded a sudden drop from 1.389 to 1.376, following a temporary relief from Trump’s 50% tariffs on $20 billion of Canadian goods. According to the earlier arrangement, both nations were expected to reach a suitable trade agreement before the deadline of August 20th(today).
However, just hours before the deadline, Donald Trump shared a post on Truth Social, stating a three-day suspension of the scheduled 50% tariffs against Canada, declaring that the two nations have reached a preliminary agreement.
“I have paused the 50% Tariffs against Canada that were scheduled to kick in tomorrow morning for a three-day period, based on the fact that Canada and the U.S.A., subject to the finalization of documents, have a DEAL!” Trump wrote.
Furthermore, on Wednesday afternoon on the South Lawn of white House, Donald Trump detailed his phone conversation with Canadian Prime Minister Mark Carney to reporters, saying that “we have come to deal with Canada” and the agreement was “very fair” to both sides.
He further claimed that Canada has agreed to end tariffs on U.S. agricultural products, stating, “The tariffs will be non-existent for our farmers. Our farmers were paying tremendous tariffs into Canada, and those tariffs are going to be totally eviscerated. Down to zero,”
In an official statement released by the Prime Minister’s Office dated August 18, Carney revealed that the brief postponement follows “intensive discussions” aimed at resolving deep-seated trade frictions and bringing economic certainty to Canadian businesses and agricultural sectors.
“Substantial progress has been made, although there is important work still to be done,” Carney stated. “As this work is ongoing, the United States has agreed to postpone the implementation of its 50% tariff.”
The details of the trade agreement are not public yet, but if the official documentation is not finalized, the next deadline for aggressive tariffs on Canadian imports is currently postponed to Saturday. The elimination of this large trade headwind resulted in a significant short-covering rally for the Canadian dollar.
Global Oil Price Soaring Again
The loonie is a major commodity currency and thus directly benefited from the rally in energy markets. Crude oil for West Texas Intermediate (WTI) trades about 3.5% higher at $87.34 per barrel, while Brent crude oil rises by approximately 3% to $94.22 per barrel.
Stalled U.S.-Iran diplomacy and escalating tensions in the Strait of Hormuz continue to prop up global crude prices. This geopolitical tension is a strong macroeconomic tailwind for the energy exporters in Canada and is weighing on USD/CAD.
USD/CAD Technical Analysis: Key Support Under Pressure
The USD/CAD pair is testing critical support at 1.376 following an intraday decline. Bearish momentum is building on the daily chart, amplified by an impending death cross between the 20-day and 100-day exponential moving averages (EMAs).
The daily relative strength index (RSI) at 24 highlights a bearish narrative among forex speculators for this pair, reinforcing a continued downtrend in the near term. If the breakdown materializes, the USD/CAD pair could plunge to the 1.370 floor.