The Canadian Dollar (CAD) is gaining ground against the US Dollar (USD), with the USD\/CAD trading around 1.3830, close to a two-week low. This movement is largely due to ongoing US-EU trade tensions, exacerbated by US President Donald Trump’s recent tariffs threat concerning Greenland.<\/p>\n
US economic policies are under scrutiny, as Trump’s tariffs face legal challenges at the US Supreme Court. His frequent use of tariffs impacts confidence in US assets, weakening the Dollar and bolstering other G10 currencies. European leaders have responded by affirming their readiness for countermeasures and emphasising their large US asset holdings, estimated at $10 trillion.<\/p>\n
From an economic perspective, the US ADP Employment Change reported a 8K figure for the week ending December 27. In Canada, recent Consumer Price Index data aligns with expectations of stable interest rates. Despite this stability, the market still anticipates two potential interest rate cuts by the US Federal Reserve later in the year.<\/p>\n
Attention is now on US President Trump, who will discuss Greenland tensions at the World Economic Forum. Meanwhile, today’s data showed the US Dollar as strongest against the Japanese Yen.<\/p>\n
The broad US dollar weakness we saw develop in late 2025 has accelerated into the new year. Following the collapse of talks in Davos last week regarding the Greenland dispute, markets are positioning for further escalation between the US and the European Union. Consequently, USD\/CAD has broken below its December lows and is now challenging the 1.3750 level.<\/p>\n
This pressure on the dollar is intensifying the policy divergence between the Federal Reserve and the Bank of Canada. After the weak US jobs report for December was released earlier this month showing a gain of only 50,000, futures markets are now pricing in a 75% chance of a Fed rate cut by March. In contrast, Canada’s stable employment figures and firm inflation data from last year suggest the Bank of Canada will remain firmly on hold.<\/p>\n
We are now seeing concrete evidence that capital is leaving the United States due to geopolitical risk. The latest Treasury data released last week showed a net foreign outflow of $45 billion from US government bonds in November, the largest monthly drop since the trade tensions of 2019. This confirms that the move by the Danish pension fund we saw in December was not an isolated event.<\/p>\n
For traders, this points toward owning downside protection on the US dollar. Implied volatility on Canadian dollar options has surged to a six-month high, making long-dated puts on USD\/CAD an attractive strategy to position for a further slide. Selling out-of-the-money call spreads could also be a prudent way to collect premium while defining risk against any surprise dollar rebound.<\/p>\n
All eyes are now on the February 1st deadline for the EU’s announced retaliatory tariffs on over $50 billion of US goods. The Supreme Court’s ambiguous ruling last week on the President’s tariff authority has only added to the market’s uncertainty. We expect volatility to remain elevated as this deadline approaches.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Canadian Dollar strengthens as US trade tensions rise; markets eye Fed rate cuts and Trump\u2019s Greenland remarks.<\/p>\n","protected":false},"author":62,"featured_media":16962,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-39665","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-ca\/wp-json\/wp\/v2\/posts\/39665","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=39665"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/39665\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/16962"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=39665"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=39665"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=39665"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}