The USD/CAD pair surged to 1.4110 during Tuesday’s Asian session, reaching levels not seen since April 2020. The rally, over 1% in daily gains, is driven by weak market sentiment following President-elect Donald Trump’s tariff threats and declining crude oil prices, both of which are pressuring the commodity-linked Canadian Dollar (CAD).
Trump’s Tariff Plans Weigh on Sentiment
Market sentiment turned sour after Trump proposed a 25% tariff on imports from Mexico and Canada and a 10% increase on Chinese goods entering the United States. The potential for increased trade tensions between the US and its North American partners has rattled markets, although a conversation between Trump and Canadian Prime Minister Justin Trudeau was described as positive. Canada’s Deputy Prime Minister also emphasized the balanced and mutually beneficial nature of the Canada-US relationship but made no direct comment on the tariff threats.
Oil Price Declines Add Pressure on CAD
The Canadian Dollar, closely tied to oil prices, weakened further as crude prices fell. West Texas Intermediate (WTI) crude traded around $69.00, pressured by reports that Israel and Lebanon have reached terms to resolve their conflict involving Hezbollah. This easing of geopolitical tensions has weighed on oil demand, further undermining the CAD.
US Dollar Strength and Fed Outlook
The US Dollar remains supported by robust preliminary S&P Global US Purchasing Managers’ Index (PMI) data, which has strengthened expectations of a gradual approach to rate cuts by the Federal Reserve (Fed).
Chicago Fed President Austan Goolsbee suggested that the Fed would guide rates toward a neutral stance, while Minneapolis Fed President Neel Kashkari hinted at the possibility of another rate cut in December. Despite these dovish remarks, the strong US economic data has helped cap the downside risks for the USD.
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