USD/CAD Slips as Powell Faces Political Heat

The USD/CAD pair is sitting on shaky ground this week, trading just above 1.3830 after failing to hold the 1.3850 handle. While this might look like a modest dip on the chart, it reflects a deeper undercurrent of macro and political uncertainty that could define this pair’s trajectory in the coming weeks.

This isn't just about rate differentials or oil fluctuations anymore, it's about credibility, confidence, and control.

Powell Under Fire: Why Fed Independence Matters for FX

It’s not often that the market openly questions the autonomy of the world’s most influential central bank. But last Friday, White House economic advisor Kevin Hassett confirmed that President Trump is reviewing whether he can fire Jerome Powell, triggering a direct challenge to the Fed's independence.

That move sent a chill through global markets. The U.S. dollar dropped sharply across the board, with USD/CAD slipping as traders reassessed risk around policy credibility. For forex traders, this isn’t a minor headline. The Fed’s independence is a pillar of market trust. Undermining it could permanently alter how the dollar reacts to rate expectations.

Despite some signs of a pause in Trump’s 145% tariff barrage, his public insistence that Powell must lower interest rates “immediately” has stoked fears that monetary policy may be politically weaponized, a clear departure from the post-Volcker norm.

Crude Oil’s Crosswinds and CAD’s Fragility

Canada’s economic heartbeat is tied to oil, and right now, that lifeline is facing crosswinds. News of potential progress in U.S.-Iran talks raised hopes that more Iranian barrels could hit the market, driving crude prices lower. For the Loonie, that’s a problem.

Even as WTI hovered near $62, pressure on oil from diplomacy, sluggish Chinese demand, and increasing U.S. inventories pulled the rug out from under the CAD. Normally, stronger oil prices support the Canadian dollar. But with tariff risks clouding trade routes, even commodity-linked currencies are wobbling.

Let’s not forget: Canada is the largest oil exporter to the U.S. When crude drops, the CAD often follows.

Historical Lessons: CAD and U.S. Policy Chaos

This isn’t the first time the Loonie has been caught in the storm of U.S. policy unpredictability.

During the 2018–2019 U.S.-China trade war, USD/CAD saw prolonged volatility, ranging between 1.29 and 1.36. Every tweet, tariff, or Powell remark shook the pair, and that’s exactly what’s happening now.

What’s different this time?

The market is already pricing in 3–4 rate cuts by the Fed in 2025, while the Bank of Canada is still walking the line. That divergence should be bearish for USD/CAD, but political risk, particularly questions over Fed control, is flipping the script.

Add to that Canada’s relatively muted exposure to reciprocal tariffs compared to other nations, and you have a currency caught between fundamental strength and headline risk.

Technical Analysis: USD/CAD Eyes Breakdown or Bounce?

Support Levels: 1.3780 → 1.3740 → 1.3675
Resistance Levels: 1.3855 → 1.3890 → 1.3925

The pair recently broke below its 9-day EMA, and RSI is sliding toward 45, suggesting momentum is tilting bearish, but not yet oversold.

The 1.3780 zone is the key to watch. A clean break below could open the door for a retest of 1.3740 and possibly 1.3675 (year-to-date swing support). However, a bounce off 1.3830 followed by reclaiming 1.3855 could fuel a corrective rally back toward 1.3925.

The rising wedge pattern is cracking. If volume confirms the breakdown, short setups could gain traction quickly.

Yearly Outlook: More Volatility Ahead

Here on the chart, the long-term technical setup, hints at a major inflection point. The pair has been trading within a broad consolidation range between 1.3650 and 1.3925 and is near break down or bounce point. Until one of those levels breaks convincingly, expect more two-way volatility.

But here’s the twist: If Fed credibility continues to erode, and oil finds stable ground, we may see a structural shift toward a weaker USD/CAD bias, especially if recession fears rise and markets favor more rate cuts.

Final Thoughts

For traders watching USD/CAD, the short-term bias remains tilted to the downside as long as the pair stays below 1.3855. Medium-term risks are rising, especially with growing concerns about the Federal Reserve’s independence and political pressure from the White House. Key catalysts ahead include Powell’s upcoming speeches, U.S. CPI data, and any major shifts in oil prices.

As traders, we should also keep an ear out for any verbal intervention from either Canadian or U.S. officials, those comments can move the needle fast, especially in a volatility-driven environment. This is not the kind of market you can set and forget. With Powell caught between politics and policy, and crude oil swinging on headlines, it’s a time to stay careful, manage risk tightly, and react to what the market shows, not what you expect.