USD/CAD February Forecast 2025: How Fed Policy, Tariffs & Oil Prices Impact US Forex Trading

The forex market is buzzing with activity as the USD/CAD pair navigates a complex environment shaped by U.S. monetary policy, new trade tariffs, shifting economic indicators, oil price dynamics, and a growing risk‑off sentiment. In this post, we break down the latest forecast for USD/CAD in February 2025, specifically tailored for USA forex traders looking for actionable insights.

Current Market Snapshot

Current Price: USD/CAD is trading at 1.425.

Key Influences:

• Monetary Policy: Fed minutes confirm no imminent rate cuts until inflation shows clear progress, keeping U.S. real yields attractive.
• Trade Policy: President Trump’s tariffs on Canadian goods add significant headwinds to the CAD.
• Oil Prices: Efforts to push down oil prices are putting additional pressure on Canada’s resource-driven economy.
• Market Sentiment: A risk‑off environment is steering investors toward the safe‑haven U.S. dollar.

Economic Indicators: A Tale of Two Economies

United States

• GDP Growth: The U.S. economy is growing at a moderate pace of around 2.3% YoY, buoyed by strong consumer spending and a resilient service sector.

• Inflation: With inflation running at about 2.9%, the Fed maintains a stable policy outlook, avoiding premature rate cuts.

• Unemployment: Low unemployment, near 3.9%, supports wage growth and robust consumer confidence.

• Trade Dynamics: A substantial trade deficit highlights the economy’s reliance on domestic consumption and investment.

Canada

• GDP Growth: Canada’s growth remains sluggish, around 0.8% YoY, reflecting weaker domestic demand and challenging global conditions.

• Inflation: At approximately 2.6%, inflation levels add pressure on the Bank of Canada (BoC) to consider easing sooner than its U.S. counterpart.

• Unemployment: Elevated unemployment, roughly 5.8%, continues to dampen consumer spending and overall economic activity.

• Trade Dynamics: Tariffs have disrupted Canada’s export channels, while lower oil prices—crucial for its resource sector—further strain the CAD.

These diverging economic trends underscore the strength of the U.S. economy compared to the vulnerabilities facing Canada, creating a favorable environment for the U.S. dollar.

How Monetary Policy Shapes the Forex Market

U.S. Monetary Policy

• Fed Stance: The Federal Reserve’s decision to hold rates until inflation shows significant progress means that U.S. real yields remain supportive of the dollar.

• Trader Insight: This policy stance reassures traders that the dollar will remain strong in the near term, especially in a risk‑off environment.

Canadian Monetary Policy

• BoC Under Pressure: With a weaker economic outlook and tariff-induced headwinds, the Bank of Canada faces mounting pressure to ease its policy.

• Impact: Even if the BoC cuts rates, the overall risk‑off sentiment and policy divergence with the Fed are likely to keep the CAD under pressure.

Fiscal Policies & Trade Tensions: A Double-Edged Sword for the CAD

• Tariffs on Canada:

• President Trump’s tariffs on Canadian goods create significant trade friction.

• These tariffs increase costs for Canadian exporters and dampen business sentiment, further weighing on the CAD.

• Fiscal Dynamics:

• While U.S. fiscal stimulus supports short‑term growth, large deficits raise long‑term concerns.

• In Canada, fiscal consolidation efforts aim to stabilize public finances, but they offer little relief in the face of immediate trade challenges.

Oil Prices and Their Role in Forex

• Oil Price Pressures:

• Trump’s policies to decrease oil prices directly impact Canada’s revenue from oil exports.

• Lower oil prices reduce economic momentum in Canada, contributing to a weaker CAD and enhancing the attractiveness of the USD.

The Impact of Risk‑Off Sentiment

Market Sentiment:

• In a risk‑off environment, investors gravitate toward safe‑haven assets like the U.S. dollar.

• The combined effects of tariffs, lower oil prices, and conservative monetary policy reinforce this shift, further pressuring the CAD.

Our February Forecast for USD/CAD

Synthesis of Key Drivers:

• Monetary Policy Differential: With the Fed holding steady and U.S. real yields intact, while the BoC faces pressure to cut rates amid weak growth, the USD is favored.

• Trade & Fiscal Policies: Tariff-induced challenges for Canada continue to weigh on its economy.

• Oil Price Dynamics: Lower oil prices reduce export revenues for Canada.

• Economic Indicators: Robust U.S. GDP growth and low unemployment contrast sharply with Canada’s sluggish growth and higher unemployment.

• Risk‑Off Sentiment: A flight to quality in volatile markets reinforces the strength of the USD.

Forecast Range for February 2025:

• Expected Movement: The USD/CAD pair is projected to move from its current level of 1.425 to a range of 1.430 to 1.435 by the end of February.

Scenario Insights:

• If the BoC cuts rates prematurely amid mounting economic pressure, the widening interest rate differential could further support the USD.

• Sustained risk‑off sentiment and ongoing trade friction reinforce this bullish outlook for the USD against the CAD.

Conclusion

The USD/CAD pair is navigating a challenging landscape marked by strong U.S. economic fundamentals and monetary stability, against a backdrop of Canadian economic vulnerabilities amplified by tariffs and lower oil prices. With the current price at 1.425, USA forex traders can expect a move toward the 1.430–1.435 range by late February 2025, driven by policy divergence and evolving macroeconomic indicators.

Stay tuned to goldeninvestor.org for further updates and detailed analyses that will help you refine your forex trading strategies in these dynamic market conditions.

Happy Trading! 

Warning: This content is for educational purposes only and should not be construed as financial advice.