USD/CAD edges higher to near 1.4330, Trump’s tariff announcement in focus
- USD/CAD moves higher to near 1.4330 as the US Dollar drops ahead of Trump’s tariff announcement.
- More tariffs on Canada will further weigh on the Canadian economic outlook.
- The US private sector hired 155K job-seekers in March, beating the estimate of 105K.
The USD/CAD pair ticks higher to near 1.4330 in Wednesday’s North American session. The Loonie pair edges higher as the US Dollar (USD) faces pressure, with investors awaiting the release of a detailed reciprocal tariff plan by United States (US) President Donald Trump at 20:00 GMT. The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, slips to near 104.00.
The new suite of tariffs by US President Trump is expected to exert more pressure on the Canadian economic outlook. Trump has already imposed 25% levies on Canada and Mexico for allowing drugs to enter the US through their borders.
This week, the Canadian Dollar (CAD) will also be influenced by the domestic labor market data for March, which will be released on Friday. Statistics Canada is expected to show that the economy added 12K workers, higher than the 1.1K recorded in February.
Meanwhile, the US Dollar drops as investors expect Trump’s tariff will also be unfavorable for the US economy. The burden of Trump’s tariffs is expected to be borne by US importers, who would pass on the impact to consumers. Such a scenario will diminish the purchasing power of households.
The US Dollar remains under pressure despite the release of the upbeat US ADP Employment Change data for March. The agency reported that private employers added 155K fresh workers, significantly higher than the expectations of 105K and the former release of 84 K.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.