**USD/CAD Weakens Below 1.3850 Amid Renewed Concerns About Fed’s Independence**
*By FXStreet, adapted and expanded for clarity and context*
The USD/CAD currency pair softened significantly below the 1.3850 level late on Monday as investor sentiment was rattled by growing concerns over Federal Reserve policy independence. Traders and analysts alike watched developments out of the United States with increased scrutiny after former President Donald Trump’s campaign team reportedly expressed intentions to exert more influence over the operations of the Federal Reserve if Trump returns to the White House.
This news sent shockwaves across forex markets, putting downward pressure on the U.S. Dollar (USD). The Canadian Dollar (CAD), while not entirely immune to volatility, found some relative strength as investors reevaluated the trajectory of U.S. monetary policy.
## Key Developments Affecting USD/CAD
### 1. Reports Question Fed’s Central Bank Independence
According to a report by The Washington Post, strategists within Donald Trump’s political circle are exploring avenues to assert more control over the Federal Reserve. These plans could include:
– Placing more restrictions on how independently the Fed can set interest rates.
– Requiring political oversight of Federal Reserve decisions.
– Appointing officials who align with a more expansionary or populist economic agenda.
This potential threat to the Fed’s independence has triggered concerns among market participants who value a central bank that operates free from political influence. The prospect of increased political meddling in monetary policy raised red flags in financial markets, prompting traders to reevaluate the forward outlook for the U.S. Dollar.
### 2. Immediate Impact on Currency Markets
Following the report, the USD came under pressure across multiple currency pairs. The USD/CAD pair notably dropped below the psychological 1.3850 level, reflecting broader dollar weakness rather than Canadian dollar strength. A weaker dollar typically signals that investors are concerned about the U.S.’s inflation outlook, monetary policy credibility, or rising political risks.
The move lower in USD/CAD coincides with a decline in the U.S. Dollar Index (DXY), which measures the greenback’s value against a basket of major currencies. After rallying in the previous weeks on expectations of higher-for-longer interest rates, the DXY lost momentum as buyers took profits amid rising policy uncertainty.
### 3. Canadian Dollar Strengthens Modestly
While the USD experienced broad-based weakness, the Canadian Dollar found modest support from two major factors:
– **Stable Crude Oil Prices**: As a commodity-linked currency, the CAD often aligns with oil market movements. Brent crude futures held near the $83 level, providing underlying support for the loonie.
– **Domestic Economic Performance**: Despite global headwinds, Canada’s labor market and GDP have shown resilient trends. Economic data, including employment gains and a stable inflation print from recent months, suggested that the Bank of Canada (BoC) may not need to rush into policy easing.
## Current Technical Overview of USD/CAD
The USD/CAD currency pair broke below the 1.3850 support zone, marking a pivotal moment in short-term price action. Key technical observations include:
– **50-day Moving Average (MA)**: The pair remains above the 50-day MA, which sits near 1.3700, providing medium-term support. This suggests that while short-term momentum favors sellers, bullish sentiment hasn’t entirely faded.
– **Relative Strength Index (RSI)**: The daily RSI has dropped below 60, signaling a shift in momentum from bullish to more neutral-to-bearish territory.
– **Fib Retracement Levels**: Traders are eyeing the 23.6% retracement level of the previous uptrend near 1.3780. A daily close below this area may indicate increased downside risk.
### Next Support Levels to Watch:
– 1.3790: Near-term horizontal support
– 1.3700: 50-day moving average
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