The USD/CAD pair has dropped sharply to approximately 1.4400, driven by a weaker US Dollar and anticipation of US President Trump’s impending tariff announcement on Canada, Mexico, and China. Trump’s plan includes proposed tariffs of 25% on Canada and Mexico, alongside a potential 10% on China.
Contrastingly, US Commerce Secretary Howard Lutnick suggested that tariffs could be lower than 25%, possibly benefiting the Canadian Dollar. Additionally, a rise in expectations for Federal Reserve rate cuts has contributed to the US Dollar’s decline, with the likelihood of a rate cut increasing to 74% for the June meeting.
Market Anticipation And Key Data
Market focus will shift towards upcoming US economic data, particularly the ISM Manufacturing PMI, slated for release at 15:00 GMT. The PMI is projected to show a slight decline, with an estimate of 50.8 compared to 50.9 in January.
This sudden drop in the currency pair suggests that traders are reacting strongly to concerns surrounding trade policy, as well as shifting expectations regarding monetary policy. The mention of tariffs from the White House has added pressure on the US Dollar, leading to increased volatility. While numbers as high as 25% had been floated, Howard’s suggestion that they could be lower has introduced an element of uncertainty that makes it harder to determine the longer-term direction just yet.
Another driving factor remains the shifting outlook for Federal Reserve policy. With the probability of a rate cut in June climbing above 70%, the US Dollar has struggled to hold ground. Lower interest rates would typically weaken a currency, as they reduce returns on dollar-denominated assets. This has helped the Canadian Dollar gain traction, particularly in a period when traders are highly sensitive to policy shifts.
Looking forward, market participants will closely monitor incoming US economic data. The release of the ISM Manufacturing PMI will provide fresh insight into economic momentum. A reading of 50.8, while only a minor step down from the previous 50.9, would still suggest that the manufacturing sector remains close to stagnation. If the number comes in lower than expected, traders will see further justification for rate cuts, most likely accelerating selling pressure on the US Dollar.
Future Market Considerations
For those engaging in derivatives, price swings may be sharper as uncertainty around tariffs and monetary policy persists. If Trump’s tariffs end up being lower than some expect, it could generate some relief, though this remains speculative. Meanwhile, the Federal Reserve’s next signals will be closely followed, as shifts in expectations around rate policy tend to move markets substantially.
Keeping track of these developments over the coming days will be essential. Data releases, official statements, and shifts in trader sentiment could quickly alter the equation.
