USD/CAD extended its decline for the third consecutive session, hovering near 1.4270 during Wednesday’s Asian trading hours. The Canadian Dollar (CAD) strengthened following reports from the Toronto Star indicating that Canada may face the lowest tier of the April 2 US tariffs.
While US President Donald Trump is reportedly considering a three-tiered tariff system, sources suggest that this approach has yet to be finalized. If enacted, these tariffs could impact key Canadian exports, influencing CAD valuation and broader trade relations between the two nations.
Oil Prices Support Canadian Dollar Strength
The CAD also found support from rising oil prices, which remain a crucial driver for the currency. Supply concerns driven by escalating Middle East tensions and a sharper-than-expected decline in US crude inventories contributed to bullish sentiment in oil markets.
- West Texas Intermediate (WTI) crude prices maintained positive momentum for the third straight day.
- As of writing, WTI trades around $69.10 per barrel.
- Supply disruptions and ongoing geopolitical instability continue to underpin oil’s upward trajectory.
Given Canada’s resource-dependent economy, rising crude oil prices provide strong fundamental backing for the CAD, keeping USD/CAD pressured below the 1.4300 level.
Federal Reserve Policy and USD Stability
Despite CAD strength, the downside for USD/CAD remains limited as the US Dollar (USD) retains support from a cautious market environment. Investors are closely watching President Trump’s final tariff announcement set for April 2, which could impact global trade flows and risk sentiment.
The US Dollar Index (DXY), which measures the USD against a basket of six major currencies, rebounded slightly from recent losses and traded around 104.30 at the time of writing.
Additionally, hawkish remarks from Federal Reserve Governor Adriana Kugler lent further support to the Greenback:
- Kugler reaffirmed that the Fed’s current interest rate policy remains restrictive.
- She noted that progress toward the 2% inflation target has slowed since mid-2024.
- Rising goods inflation, according to Kugler, presents additional challenges to monetary policy.
As market participants weigh the implications of potential tariffs and the Fed’s policy stance, the USD/CAD pair could remain range-bound ahead of key economic releases and geopolitical developments.