USD\/CAD was little changed on Tuesday, with the pair near 1.3705 after an intraday high around 1.3725. A firmer US Dollar kept the Canadian Dollar under mild pressure.<\/p>\n
The US Supreme Court ruled last week that President Donald Trump\u2019s use of the International Emergency Economic Powers Act to impose broad tariffs was unlawful. After the ruling, Trump invoked Section 122 of the Trade Act of 1974 and announced a temporary 10% flat tariff on imports from all countries, effective Tuesday.<\/p>\n
Reduced expectations for near-term Federal Reserve rate cuts supported the US Dollar after slower fourth-quarter GDP growth and firm PCE inflation. Chicago Fed President Austan Goolsbee said he still sees scope for more cuts this year, but wants clearer evidence that inflation is returning to the 2% target.<\/p>\n
ADP Employment Change four-week average rose to 12.8K from 11.5K. Conference Board Consumer Confidence climbed to 91.2 versus an 87.1 forecast, and up from 84.5, which was revised up to 89.<\/p>\n
Markets are watching Trump\u2019s State of the Union address on Wednesday for trade policy details. In Canada, focus is on fourth-quarter annualised GDP due on Friday, with little else on the calendar.<\/p>\n
WTI crude traded around $65.80, down about 0.90%, easing from its highest level since August 2025. US-Iran tensions added volatility to oil, a key influence on the Canadian Dollar.<\/p>\n
We see the new 10% flat tariff imposed by the US as a major market disruption that will keep the US Dollar firm due to safe-haven demand. This policy injects a high degree of uncertainty not seen since the trade conflicts of the late 2010s, which historically led to a stronger greenback. For derivative traders, this backdrop suggests a bullish outlook on the US Dollar against currencies of major trading partners like Canada.<\/p>\n
The divergence between the Federal Reserve and the Bank of Canada is becoming more pronounced. Recent US inflation data, with Core PCE last month coming in at 2.9%, gives the Fed little reason to cut rates, while the US tariffs directly threaten Canadian exports and growth. We are now pricing in a higher probability of a Bank of Canada rate cut by the third quarter of this year, a divergence that should continue to push USD\/CAD higher.<\/p>\n
This environment is ripe for higher price swings, and we have seen one-month implied volatility on USD\/CAD options climb to nearly 9% from just 6% at the start of the year. Buying volatility through strategies like long straddles could be an effective way to position for a significant price move following Wednesday’s State of the Union address, without having to bet on the direction. These options allow traders to profit from a sharp move up or down in the currency pair.<\/p>\n
The Canadian dollar’s usual sensitivity to oil prices appears to be weakening. Even with WTI crude holding above $65 a barrel due to ongoing US-Iran tensions, the Loonie has failed to gain traction, showing that trade fears are the dominant factor. Last week’s report from the EIA showing a surprise crude inventory build of 4.1 million barrels was largely ignored by currency markets, confirming that we should not rely solely on oil prices to guide our CAD positions.<\/p>\n
All attention in Canada is now on this Friday’s fourth-quarter GDP data from 2025, with market forecasts pointing to a weak 0.8% annualized growth rate due to the trade headwinds that emerged late last year. A weaker-than-expected number would reinforce the dovish outlook for the Bank of Canada and could be the catalyst to push USD\/CAD through the 1.3800 level. We believe using call options to bet on a move higher in the pair ahead of this data release is a sound strategy.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" USD\/CAD steadied near 1.3705 as US tariffs, Fed cut expectations, and oil volatility pressured Canadian dollar.<\/p>\n","protected":false},"author":62,"featured_media":16967,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-42716","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts\/42716","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/comments?post=42716"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts\/42716\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/media\/16967"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/media?parent=42716"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/categories?post=42716"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/tags?post=42716"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}