The USD/CAD pair retreated to near 1.4240 during the late American session on Monday, snapping a two-day winning streak as the Canadian Dollar (CAD) gained strength on signs of relative immunity from the latest wave of U.S. trade tariffs.
The Canadian Dollar drew support after the U.S., under President Donald Trump, announced sweeping new tariffs on imports last week, including a 10% baseline duty across the board. However, Canada and Mexico were largely spared, with exclusions made for most sectors except auto exports and metals like steel and aluminum, which remain subject to separate trade restrictions.
“This relative exemption has buoyed the Loonie,” said Jayati Bharadwaj, Global FX Strategist at TD Securities. “CAD is outperforming non-USD peers as Canada remains relatively shielded from the new round of tariffs.”
Broader Market Context
The tariff escalation has reignited recession concerns in the U.S., prompting investors to increase bets on Federal Reserve rate cuts this year. According to the CME FedWatch Tool, markets now price in a 65% probability of a Fed rate cut in May, with expectations for as much as 100 basis points of easing by year-end.
These dovish rate expectations are putting downward pressure on the U.S. Dollar, making it more vulnerable against peers like the CAD, which is currently benefiting from its trade-exempt status and higher commodity prices.
As trade tensions deepen and the Fed’s policy path shifts toward potential easing, the USD/CAD pair could remain under pressure in the near term, especially if Canada continues to avoid the brunt of protectionist measures.
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