USD/CAD consolidates near multi-week top, below 1.4400 ahead of Trump’s tariffs
- USD/CAD seesaws between tepid gains/minor losses below a multi-week top set on Tuesday.
- Bullish Oil prices underpin the Loonie and cap the currency pair amid subdued USD demand.
- Traders also seem reluctant and prefer to wait for Trump’s reciprocal tariffs announcement.
The USD/CAD pair touches a two-and-half-week top on Tuesday, though it struggles to find acceptance or build on the intraday uptick beyond the 1.4400 mark. Spot prices, however, manage to preserve the recent recovery gains as traders now await US President Donald Trump's reciprocal tariffs announcement before placing fresh directional bets.
In the meantime, a modest US Dollar (USD) strength acts as a tailwind for the USD/CAD pair. The Canadian Dollar (CAD), on the other hand, is undermined by the risk of a further escalation of the US-Canada trade war. Apart from this, domestic political uncertainty ahead of the snap election on April 28 is seen weighing on the CAD and lending support to the currency pair.
Meanwhile, investors now seem convinced that slowing US economic growth on the back of the uncertainty over Trump's trade tariffs could force the Federal Reserve (Fed) to resume its rate-cutting cycle soon. This, along with a slight improvement in the global risk sentiment, keeps a lid on any meaningful upside for the safe-haven Greenback and the USD/CAD pair.
Furthermore, the recent move up in Crude Oil prices, to over a one-month high touched on Monday, underpins the commodity-linked Loonie and contributes to capping the USD/CAD pair. Trump threatened massive tariffs on Russian oil and potential bombings in Iran, which raises the risk of supply disruption and acting as a tailwind for Crude Oil prices.
Traders now look forward to the US economic docket – featuring the release of JOLTS Job Openings and ISM Manufacturing PMI. The focus, however, will remain glued to Trump's trade policies, which will influence the broader risk sentiment and drive the USD demand. Apart from this, Oil price dynamics should provide some impetus to the USD/CAD pair.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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