USD/CAD price extends rally as greenback gains on Fed support and trade tariff worries
USD/CAD climbs as USD strengthens on Fed support
The USD/CAD pair advanced to 1.4430 during Monday’s Asian trading hours as the US dollar (USD) strengthened amid a robust economic backdrop and concerns over impending US trade tariffs. The recent US Nonfarm Payrolls (NFP) report exceeded expectations, reinforcing the Federal Reserve’s cautious approach to rate cuts, which continues to support the Greenback.
The US Bureau of Labor Statistics reported that NFP surged to 256,000 jobs in December, surpassing the forecast of 160,000. The unemployment rate also edged lower to 4.1% from 4.2%, reflecting continued resilience in the labor market. This data bolstered the Fed's cautious tone, which contrasts with market hopes of more aggressive rate cuts this year.
USD/CAD price movement (Nov 2024 - Jan 2025) Source: TradingView.
Canadian Dollar Faces Trade Tensions Amid Oil Price Gains
Despite the strengthening USD, crude oil prices lent partial support to the Canadian dollar (CAD). As the largest oil exporter to the US, Canada’s economy is sensitive to oil price movements. However, this positive effect was overshadowed by rising concerns over potential tariffs.
Stephen Brown, deputy chief North America economist at Capital Economics, highlighted that the market is factoring in potential tariffs from President-elect Donald Trump. On Sunday, Prime Minister Justin Trudeau emphasized Canada’s preference to avoid a trade war but warned that retaliation is unavoidable if tariffs are imposed.
A continued rise in crude oil prices could provide a lifeline for the CAD, but concerns surrounding trade policies remain a downside risk. Traders are closely monitoring developments in US-Canada trade relations and upcoming policy decisions for further market direction. A break above 1.4450 could signal further gains for USD/CAD, while stronger oil performance may keep CAD losses in check.
In our prior analysis, we discussed how Trudeau’s resignation and falling oil prices added volatility to the CAD.
