Trump Tariff Pause Fuels Canadian Dollar Gains Amid USD Slump
The Canadian dollar (CAD) has strengthened in recent trading sessions following President Donald Trump's announcement that he would pause 50% tariffs against Canada for a three-day period. This news, combined with rising crude oil prices and some US dollar selling, has put downward pressure on the USD/CAD pair.
Spot prices currently trade around the 1.3880 area, but the downside seems cushioned as traders await the release of FOMC Minutes. The Canadian prime minister, Mark Carney, was involved in overnight negotiations with Trump, which may have contributed to the CAD's gains.
The US data released last week showed signs of cooling inflation and a slowdown in consumer spending, leading traders to scale back their bets for an immediate interest rate hike by the Federal Reserve. This has kept a lid on the USD recovery from its two-month low, touched on Monday.
However, inflation risks stemming from rising energy prices may force the Fed to adopt a more hawkish stance, which would be supportive of elevated US bond yields and limit USD losses. The CME Group's FedWatch Tool indicates that traders are still pricing in around a 68% chance of a Fed rate hike by year-end.
The FOMC Minutes will be scrutinized closely for cues about the Fed's policy path, which will influence the USD and provide an impetus to the USD/CAD pair. Technical analysis suggests that the pair holds above the 200-day Simple Moving Average (SMA) near 1.3848, indicating a supportive broader trend backdrop.