USD/CAD Gains Limited by Weak US Dollar and Trade War Uncertainty

The Canadian Dollar (CAD) has shown signs of hesitancy as the US-Canada trade war escalates. Despite this, the USD/CAD pair has started the week on a positive note, with prices rising nearly 0.30% to just below $1.3800. The Loonie's weakness is attributed to the ongoing trade tensions and sliding oil prices.

The US imposed 50% tariffs on $20 billion worth of Canadian goods over the weekend after trade talks between the two countries fell apart. In response, Canadian Prime Minister Mark Carney announced that Canada would impose its own retaliatory tariffs beginning September 8.

Meanwhile, the US Dollar (USD) remains weak, with interest rates remaining low and the Federal Reserve's rate hike expectations dwindling. Additionally, the US Treasury's decision to double buyback operations for long-dated government debt has contributed to a pullback in US bond yields, further weighing on the USD.

Geopolitical tensions surrounding Iran have also added to the uncertainty. US Treasury Secretary Scott Bessent is expected to announce what he calls 'the toughest sanctions in history' on Iran at a press conference today. This could lead to increased crude oil prices and support for the safe-haven USD, making it essential to exercise caution before placing directional bets on the USD/CAD pair.