The USD/CAD pair saw continued declines, approaching 1.4400 during the late American session on Tuesday. The U.S. Dollar (USD) weakened against the Canadian Dollar (CAD) as concerns over slowing U.S. economic growth and the impact of tariffs on global trade overshadowed any potential positive effects of the newly imposed tariffs on Canada, China, and Mexico.
Tariff Impact and U.S. Economic Concerns
On Tuesday, President Donald Trump’s 25% tariffs on goods from Canada and Mexico officially took effect, alongside a rise in duties on Chinese goods from 10% to 20%. Despite these new measures, U.S. Commerce Secretary Howard Lutnick suggested that Trump may be reconsidering these tariffs less than 48 hours after their implementation. This uncertainty surrounding future tariff policies is contributing to volatility in the USD/CAD pair, with investors on edge as they await further developments.
Bank of Canada Rate Cuts and Market Expectations
On the Canadian side, rising expectations of additional interest rate cuts from the Bank of Canada (BoC) are adding pressure to the Canadian Dollar. Market participants are pricing in roughly an 80% probability that the BoC will lower rates again next week, according to Reuters. BMO’s chief economist, Douglas Porter, noted that the central bank could continue with quarter-point cuts in subsequent meetings, bringing the rate to 2.0% by July. Such prospects of easier monetary policy could weigh on the CAD in the near term, providing support for the USD/CAD pair.
Crude Oil Price Decline and Its Effect on the Loonie
Another factor contributing to CAD weakness is the recent drop in crude oil prices. Reports that OPEC+ plans to increase oil production starting in April have pressured oil prices lower, which is particularly impactful for Canada, the largest oil exporter to the U.S. As oil prices fall, the Canadian Dollar tends to weaken, as it is heavily correlated with the value of crude oil.
Outlook for USD/CAD
As trade tensions persist, the uncertainty around tariffs, coupled with expectations of lower interest rates from the Bank of Canada, is likely to keep the USD/CAD pair under pressure. Any further escalation of trade policies or shifts in central bank decisions could trigger increased volatility in the pair. The relationship between crude oil prices and the CAD will also continue to be a key factor in determining the direction of the pair in the short term.
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