CANADIAN DOLLAR COLLAPSE: The Perfect Storm for a Long-Term USD Breakout

Technical & Macro Fundamentals Align for a Potential Move to 1.60+ and Beyond

Technical Perspective: The Inverse Head & Shoulders Breakout

The USDCAD monthly chart suggests a long-term inverse head and shoulders formation that has been developing since 2003. This pattern, if confirmed, could indicate a massive bullish breakout for USD against CAD.

Key Technical Takeaways:

  1. Inverse Head and Shoulders Formation

    • The structure shows two major troughs (shoulders) and a lower central trough (head).

    • The neckline resistance sits around 1.47 - 1.50, which, if broken, would signal a major bullish move.

  2. Breakout Potential & Price Targets

    • 1.47-1.50 has been a major resistance zone (tested in 2003, 2016, and 2020).

    • A monthly close above 1.50 could push USDCAD toward 1.60+ in the coming years.

    • The next key resistance lies near 1.60-1.62, a level last seen in the 1990s.

    • A move to 2.00 CAD per USD would require an extreme fundamental shift (covered below).

  3. Volume & RSI Support the Move

    • Volume expansion suggests strong participation in the recent rally.

    • RSI is not overbought, leaving room for continuation of the trend

Macro Fundamentals: Trade War & Canadian Economic Weakness

While technicals point to a bullish breakout, recent macroeconomic developments are accelerating the case for CAD weakness.

1. Trade War Escalation & Canada’s Economic Vulnerability

The renewed U.S.-Canada trade war under the current Trump administration will deal a devastating blow to the Canadian economy.

  • Trump’s 25% Tariff on All Canadian Goods & 10% Tariff on Energy

    • Canada exports ~75% of its goods to the U.S., making it highly dependent on U.S. demand.

    • A 10% tariff on oil & gas is particularly damaging since energy accounts for ~22% of Canada’s total exports.

    • Lower energy exports = weaker CAD, as oil prices and CAD are highly correlated.

  • Canada’s Retaliatory Tariffs Could Backfire

    • Canada relies heavily on imports from the U.S., meaning counter-tariffs could hurt Canadian businesses more than U.S. ones.

    • The U.S. sends only ~18% of its exports to Canada, meaning it has far less to lose in a trade war.

2. The Bank of Canada is Cornered: Rate Cuts & CAD Devaluation

The Bank of Canada (BoC) is trapped between a slowing economy and a weakening currency.

  • BoC May Cut Rates Before the Fed

    • To offset the economic slowdown, the BoC may be forced to cut interest rates sooner than the Federal Reserve.

    • This will widen the interest rate differential, making the CAD less attractive to investors and driving capital outflows.

    • Lower rates = Lower CAD due to a decline in foreign investment.

  • Government Handouts & Money Printing = CAD Collapse?

    • The Trudeau administration (or any future Canadian government) will likely increase government spending to offset the impact of tariffs.

    • Subsidies & stimulus measures to "protect" Canadians from tariffs will lead to more money printing, fueling inflation and CAD depreciation.

    • If inflation rises while the BoC cuts rates, CAD could enter a downward spiral.

3. The Canadian Real Estate Bubble: A Ticking Time Bomb?

  • Low rates may keep housing prices inflated, preventing affordability from improving.

  • If Canada experiences a real estate downturn, capital could flee the country, further weakening CAD.

Could USDCAD Reach $2.00?

A move to 1.60+ looks increasingly likely under current macro conditions, but could we see USDCAD at 2.00?

  • Base Case (1.60+ Target):

    • A confirmed breakout above 1.50 could trigger a long-term move toward 1.60.

    • Trade war, rate cuts, and inflation accelerate CAD depreciation.

  • Extreme Case (2.00 Target):

    • A full-blown recession in Canada combined with:

      • A crash in oil prices

      • Aggressive money printing

      • U.S. maintaining higher rates longer

    • These conditions could push USDCAD to levels last seen in the 1990s (1.62-1.65) or beyond.

Strategic Trading Considerations

📌 If You’re Long on USDCAD:

  • A clean breakout above 1.50 signals an entry point for 1.60+ targets.

  • Consider long-dated call options to capture long-term upside.

  • Monitor BoC’s policy moves and tariff updates for further confirmation.

📌 Shorting CAD vs. Other Currencies:

  • Short CAD against USD, EUR, JPY, and CHF, as CAD could weaken across the board.

  • Watch commodity prices (especially oil) as a proxy for CAD strength/weakness.

Key Events to Watch: Post-Trump Victory and Its Impact on USDCAD

With Donald Trump securing victory, the landscape for USDCAD and the Canadian economy is set to shift dramatically. Here’s what traders and investors should be watching:

1. Intensified U.S.-Canada Trade War

  • Trump has already announced a 25% tariff on all Canadian goods and a 10% tariff on Canadian energy exports.

  • Canada is retaliating, but Canada’s economy is far more vulnerable than the U.S. due to its reliance on American trade (75% of exports go to the U.S.).

  • Expect severe damage to Canadian manufacturing and energy sectors, weakening CAD further.

2. Bank of Canada’s Forced Rate Cuts

  • The BoC now has little choice but to cut rates aggressively to offset the economic slowdown.

  • Rate cuts will widen the interest rate gap between the Fed (holding steady or hiking) and the BoC (cutting), causing capital flight from CAD into USD.

  • A lower CAD weakens Canadian purchasing power, worsening inflation.

3. Potential Oil Price Collapse

  • Canada’s economy is highly correlated to oil, and Trump has already suggested policies that could flood the market with U.S. energy production.

  • A weaker oil price = weaker CAD, further pushing USDCAD higher toward 1.60+.

4. Canadian Government's Reaction: More Printing & Stimulus?

  • The Trudeau administration is expected to increase government handouts and subsidies to mitigate the impact of tariffs.

  • More spending will inflate Canada’s already high debt levels and put further pressure on CAD depreciation.

  • Foreign investment may pull out as confidence in Canada’s fiscal stability declines.

5. U.S. Dollar Strengthening as Global Safe Haven

  • Trump’s policies will likely bolster the USD through tax cuts, deregulation, and protectionism.

  • If global markets become more volatile, the USD will remain the preferred safe-haven currency, adding even more upward momentum to USDCAD.

Final Take: USDCAD Breakout in Motion

With Trump’s victory, the technical breakout at 1.50 is now highly probable, and USDCAD could quickly push to 1.60+ in the coming months. If the trade war, BoC rate cuts, and economic instability accelerate, a long-term move to 1.80-2.00 is not off the table.

📌 Strategy:

  • Long USDCAD on confirmation of the breakout.

  • Options traders should consider long-dated calls targeting 1.60+.

  • Watch for BoC emergency rate cuts and further deterioration in oil prices.

🚀 USDCAD is now positioned for an explosive rally—are you ready for it?


Joel Goralski