We'll examine the drivers that have shaped the USD/CAD since 2020 and conclude by discussing the pair's future movements.
In this article, we will explore the major elements that have influenced the trajectory of the USD/CAD pair since 2020. We'll conclude by looking at factors that could impact the pair's movements going forward.
1. January 2020–May 2021: Strong Decline Following the Pandemic's Volatile Period
In the initial months of 2020, as the pandemic started to unfold, the demand for safe-haven assets like the U.S. dollar soared due to market uncertainty. This led to significant volatility in the USD/CAD exchange rate, culminating in a sharp price increase in March 2020.
Note the lofty dark cloud cover that marked the end of the spike in price, paving the way for the extended downtrend that followed.
![USD/CAD: Strong Decline Following the Highs of 2020 (Weekly Chart)](https://www.dollarcontext.com/content/images/2023/10/1--USDCAD-Downtrend-After-the-Spike-in-2020.png)
2. June 2021–September 2023: The Bottom and the Ensuing Upturn
Between April and June 2021, the USD/CAD displayed a tower bottom. A series of doji and spinning top sessions within this period reinforced the probability of a bullish reversal. This is what unfolded in Summer 2021 when the pair initiated a significant uptrend.
The Federal Reserve's hiking cycle initiated in April 2022 and the subsequent decline in commodity prices contributed to sustain the upward momentum of the USD/CAD.
![USD/CAD: The Bottom in Early 2021 and the Subsequent Ascent (Weekly Chart)](https://www.dollarcontext.com/content/images/2023/10/2--USDCAD-Rally-Since-June-2021.png)
3. Outlook for Late 2023 and Throughout 2024
While the immediate trajectory of the USD/CAD pair is unclear, there are several key factors that could influence its future direction:
- AI's Influence on Market Mood: Technological advancements in Artificial Intelligence could affect market sentiment, potentially making the U.S. dollar, a riskier asset, less attractive.
- Economic Slowdown Worries: Factors like the Federal Reserve's assertive rate increases and warning signs like an inverted yield curve hint at the potential for a global economic downturn in 2024. In such volatile conditions, investors often gravitate towards the U.S. dollar as a "safe-haven."
- Escalating National Debt: Rising concerns about the expanding federal budget deficit could have implications for the USD's value in the short and medium term.