USD/CAD Extends Recovery Amid Trade War Uncertainty

The USD/CAD pair continues to trade positively, hovering around the mid-1.3800s during the Asian session on Tuesday. Despite a combination of factors driving its price, including inflation risks and geopolitical uncertainties, the Canadian Dollar remains under pressure.

A recent uptick in crude oil prices has failed to provide significant support for the CAD, with concerns over a deepening US-Canada trade war taking center stage. The US imposed 50% tariffs on $20bn worth of Canadian goods on Saturday, prompting Canadian Prime Minister Mark Carney to announce retaliatory tariffs beginning September 8.

Strategists at Scotiabank note that the collapse of US-Canada trade talks has torpedoed positive sentiment around the CAD and introduced a period of heightened uncertainty. The Canadian government's response to the latest round of US tariffs underscores the significant policy and trade uncertainty facing Canadian businesses.