The USD/CAD pair continued its downward trend on Monday, marking the fourth consecutive session of losses, with the pair trading around 1.3860 during Asian hours. The decline is primarily driven by a weakening US Dollar (USD), as growing recession fears and persistent inflationary pressures lead investors to shy away from US assets.
US Dollar Faces Dual Pressure from Economic Woes and Trade Tensions
The Greenback’s decline is compounded by the ongoing US-China trade tensions, which have reignited fears of a global economic slowdown. On Friday, China’s Ministry of Finance announced a significant hike in tariffs on US goods, raising duties from 84% to 125%, following President Trump’s earlier decision to increase tariffs on Chinese imports to 145%. These moves have further weighed on investor sentiment and contributed to the USD’s struggles.
Weaker Economic Data Adds to Bearish USD Sentiment
Economic data released late last week also pointed to a slowing US economy, further damping the outlook for the USD. The University of Michigan’s consumer sentiment index dropped to 50.8 in April, its lowest in years, while one-year inflation expectations surged to 6.7%. The US Producer Price Index (PPI) rose 2.7% year-over-year in March, easing from the previous month’s 3.2%, and core inflation cooled to 3.3%. Additionally, initial jobless claims rose to 223,000, though continuing claims fell to 1.85 million, indicating a mixed picture in the labor market.
In a televised interview on CBS’ Face the Nation, Minneapolis Federal Reserve President Neel Kashkari emphasized the significant economic risks posed by the trade war, stating that it represents “the biggest hit to confidence” he’s seen in his 10 years at the Fed, second only to the COVID-19 crisis in March 2020. Kashkari noted that the economic impact will largely depend on how quickly trade uncertainties are resolved.
US-Canada Trade Flows and Oil Prices Affecting the CAD
While a brief 90-day truce in the US-China trade war provided some optimism for renewed negotiations, broader concerns about the US economic outlook have shifted capital flows toward Canada, strengthening the Canadian Dollar (CAD).
However, the commodity-linked CAD is facing challenges as oil prices remain subdued. Canada, the largest oil exporter to the US, is directly impacted by the ongoing weakness in the energy markets. West Texas Intermediate (WTI) crude is trading lower at around $60.70 per barrel, reflecting worries that the escalating US-China trade conflict could reduce global oil demand and dampen growth prospects.
Related Topics:
