The Canadian dollar has been under pressure ever since President Trump said he wanted to revamp NAFTA, or North American Free Trade Agreement, which is crucial for US-Canada trade relations while traders also remained cautious ahead of data releases which hare projected to be C$-negative.
If traders prefer to bet more on the loonie downside, USD/CAD can soon rise to levels above 1.3500 from the current 1.30 region. The pair had fallen as much as 0.7% on the day before paring losses in the afternoon trade.
The market is now waiting for a set of economic releases scheduled for this week even as concerns regarding Trump's policies continue to weigh.
The trade data and building permits numbers for December are among Tuesday's releases followed by the Ivey PMI numbers for January.
Building permits in Canada may have fallen 2.5% in December, worse than the November slide of 0.1%, forecasts show. Analysts expect the trade surplus to shrink to C$0.35 billion from C$0.53 billion. The PMI too is seen declining, to 58.3 for January from 60.8 in November.
USD/CAD has been keeping the big picture uptrend since 2012, despite a brief turn south off the 13-year high of 1.4690 touched in January last year. The correction from there, however, ended at a 1-year low of 1.2494 in May and has been trending higher since.
The loonie had made a 3% gain in January but it could not weaken the uptrend since May. Now with the fundamental challenges for the Canadian dollar in the background, technical traders will more be buyers of the pair, bringing immediate resistance levels in focus.
The pair will first look at 1.3462 and then 1.3600 on the upside, opening doors to 1.40 before a retest of the January peak.
On the downside, only a break below 1.2494 will bring the correction off the January peak back in the picture. The levels then coming in picture will be 1.1975 followed by 1.1280.
Canadian authorities and businesses are worried if Trump will bargain for a removal of the chapter 19 of the agreement which deals with the dispute-settlement mechanism where an independent binational panel hears complaints about unfair trade and issues binding decisions.
The US side has long been arguing that such a system is an unfair ceding of US sovereignty, and if that has been removed, then Canadian firms would have to come to US courts in case of disputes.
The market is weighing options like a permanent panel of judges being chosen by each country to replace the independent experts that are currently selected to administer Chapter 19 panels.
At the same time, everyone is keenly waiting for the US visit by the Canada Prime Minister Justin Trude, which has not been scheduled yet though.
Canada is also concerned about a likely "border adjustment tax" on foreign imports, a Republican proposal, not unlike a surcharge former president Richard Nixon briefly imposed in 1971.