The USD/CAD pair surges to near 1.4430 on Friday, driven by investor caution ahead of Trump's inauguration and expectations of increased tariffs on Canadian goods. The Canadian Dollar weakens as market participants grapple with the potential impact of a trade war on the Canadian economy.
The USD/CAD pair surged to near 1.4430 on Friday during the North American session, driven by investor caution ahead of Donald Trump 's inauguration as US President on Monday. The Canadian Dollar (CAD) weakened against its major counterparts as market participants anticipate Trump's potential imposition of tariffs on Canadian exports to the US. Trump has previously indicated a willingness to increase tariffs on Canadian goods by 25%, raising concerns about a potential trade war .
This uncertainty has dampened the outlook for the Canadian economy, prompting expectations of a weaker CAD. The Canadian Dollar's performance was further influenced by soft core CPI data for December, which fueled speculation about the Federal Reserve (Fed) adopting a more dovish stance. Traders increased their bets on multiple interest rate cuts by the Fed, pushing the US Dollar (USD) higher. The USD Index (DXY), which measures the value of the US Dollar against six major currencies, climbed to near 109.15. Economists at Scotiabank anticipate that if Canada faces substantial tariffs without retaliating, the disinflationary effects could lead to further easing by the Bank of Canada (BoC). A Reuters poll from January 10-16 indicated a high probability of the BoC cutting interest rates by 25 basis points (bps) to 3%. The Canadian Dollar's movements are heavily influenced by several key factors, including the Bank of Canada's interest rate decisions, oil prices, the health of the Canadian economy, inflation, and the trade balance
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