Investor caution and anticipation of Trump's 25% tariff increase on Canadian exports drive the USD/CAD pair to near 1.4430. Softer CPI data fuels expectations of Fed rate cuts, strengthening the US Dollar further. Canadian Dollar weakens as the looming trade war dampens economic outlook.
The USD/CAD pair surged to near 1.4430 on Friday during the North American session, reflecting investor caution as Donald Trump prepares to assume office on Monday. The Canadian Dollar (CAD) weakened in the face of anticipation that Trump's incoming administration will implement a 25% tariff increase on Canadian exports to the United States. This looming trade war has dampened the outlook for the Canadian economy.
Adding to the CAD's decline, softer-than-expected core Consumer Price Index (CPI) data for December fueled expectations of further dovish actions by the Federal Reserve (Fed). Traders are now betting heavily on multiple interest rate cuts by the Fed, driving the US Dollar (USD) higher. The US Dollar Index (DXY), which gauges the USD's strength against six major currencies, climbed to approximately 109.15.Analysts predict that, if Canada faces substantial tariffs from the US without retaliatory measures, the disinflationary effects could prompt the Bank of Canada (BoC) to significantly ease monetary policy. This aligns with the BoC's history of aggressive policy adjustments. A Reuters poll conducted from January 10-16 indicates a high probability that the BoC will lower interest rates by 25 basis points (bps) to 3% in its upcoming meeting. The anticipated impact of Trump's tariffs and the potential for Fed rate cuts create a complex macroeconomic environment, influencing both the Canadian and US currencies
USD/CAD Canadian Dollar US Dollar Donald Trump Tariffs Trade War Bank Of Canada Federal Reserve Interest Rates CPI Economy
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