The USD/CAD currency pair was marginally up for the second straight day on Tuesday and was last seen operating in a subdued positive tone. The duo is still stuck in a well-known range that has defined its movements in recent history over the last 14 days. Note that the U.S. dollar is looking relatively strong on foreign exchange markets these days. It faces a powerful headwind from an unusual confluence of economic uncertainties and external trade policy.
The International U.S. dollar is in the process of getting its day. It’s just not heavily backed up with follow-through buying, preventing it from powering a more serious rally. U.S. President Donald Trump’s unpredictable trade policies are the key driving factor. These unprecedented policies have understandably shaken many investors and are working to prevent aggressive bets on the dollar. This uncertainty is hitting the USD/CAD pair directly, as traders are hesitant to act against variable economic conditions.
Trade Policy Concerns Weigh on USD
The impact of President Trump’s trade policies is still being felt across the currency markets, most notably impacting the USD. These reports suggest that Trump’s unpredictable style with trade negotiations undermine confidence in the U.S. dollar’s value. As one effect, traders are on edge. In terms of the dollar’s value, it’s made a pretty decent jump. Most market participants are afraid to bet big because they fear a whipsaw from an unexpected policy change.
The resulting ongoing economic uncertainty from these trade policies continues to dampen the USD. So, we are witnessing very thin dollar support. Consequently, the USD/CAD is at risk of continuing its long-standing downtrend. Traders are looking at the situation on U.S.-Canada trade with bated breath. With Canadian Prime Minister Justin Trudeau visiting the White House this week, that interest is only more heightened right now.
Canadian Dollar Gains Ground
Bucking this negative sentiment, the Canadian dollar (CAD) has caught a bid. FIRST, its skyrocketing demand is due to increasing optimism about a possible U.S.-Canada trade deal. Combined with positive domestic data, market sentiment has turned positive towards the Loonie, with traders upbeat about the outcome of Trudeau’s discussions with Trump. A strong trade agreement would help reinforce Canada’s already strong economic competitive advantage. It would give added support to the CAD against the USD.
Additionally, Canada’s overall economy is very dependent on its petroleum exports, which are a primary driver in value of CAD. With oil prices back on the rise, that Loonie gets a boost. This trend gives less upside potential for the USD/CAD pair to rise. The CAD is tightly correlated with oil prices. Any fluctuations in crude oil prices can quickly shift traders’ expectations about future Canadian dollar strength.
Market Dynamics and Future Outlook
USD/CAD spot prices are currently very close to their lowest levels since late 2024. Fundamentally, this positioning is a by-product of the current FX market landscape that should lead to a cautious approach to trading the pair. Hopes for a U.S.-Canada trade deal have underpinned the commodity-linked Loonie. At the same time, these hopes hold back major moves in the USD/CAD currency pair.
The interplay between recovering oil prices and trade negotiations will likely continue to dictate the direction of USD/CAD in the near term. Traders remain vigilant as they assess how these factors will evolve following Trudeau’s visit to Washington and any resulting agreements.