The USD/CAD pair extended its rally to nearly 1.4340 during the late American session on Wednesday, driven by a sustained drop in crude oil prices, which continues to pressure the commodity-linked Canadian Dollar (CAD). Market participants are now awaiting key economic data, including the US weekly Initial Jobless Claims report and the preliminary estimate of Gross Domestic Product (GDP) for the fourth quarter (Q4), due Thursday.
Crude oil prices have fallen to a two-month low amid growing concerns about supply as the likelihood of a peace agreement between Russia and Ukraine improves. This decline is particularly significant for Canada, the largest oil exporter to the United States, as lower oil prices generally have a negative effect on the value of the CAD.
Adding to the pressure on the Canadian Dollar, renewed tariff threats from the US government are providing further support for USD/CAD. US President Donald Trump confirmed plans to impose 25% tariffs on Canadian goods and 10% tariffs on Canadian energy exports, effective April 2. These measures follow previous delays tied to border security issues. As Adam Button, chief currency analyst at ForexLive, noted, while the delayed tariffs offer some temporary relief, the ongoing uncertainty surrounding the issue remains a significant drag on the Canadian economy.
Meanwhile, the US Dollar has bounced back from 11-week lows as traders assess the strength of the US economy and the evolving tariff situation. Richmond Federal Reserve President Tom Barkin indicated on Tuesday that the central bank would adopt a wait-and-see approach regarding interest rate decisions until inflation moves closer to the Fed’s 2% target, given the current economic uncertainty.
With several Federal Reserve officials, including Michelle Bowman, Beth Hammack, and Patrick Harker, scheduled to speak later today, any hawkish comments could further boost the US Dollar against the Canadian Dollar in the near term.
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