The USD/CAD pair has extended its upward momentum, reaching near 1.4430 during the Asian trading hours on Monday. The Canadian Dollar (CAD) is under pressure due to potential US trade tariffs, but optimism surrounding a potential shift in the Canadian government and rising crude oil prices may help limit the downside for the CAD.
The recent strong US employment report has reinforced the Federal Reserve’s cautious stance on rate cuts this year, supporting the US Dollar. The US Nonfarm Payrolls (NFP) report showed an increase of 256,000 jobs in December, exceeding expectations of 160,000 and surpassing the prior reading of 212,000 (revised from 227,000). Additionally, the Unemployment Rate dropped to 4.1% in December, down from 4.2% in November.
At the same time, concerns over the potential for US President-elect Donald Trump’s trade tariffs are weighing on the Canadian Dollar. “We are assuming that Trump will impose tariffs on Canada this year, which is likely to weigh on the loonie,” said Stephen Brown, deputy chief North America economist at Capital Economics.
In response to these fears, Canadian Prime Minister Justin Trudeau stated on Sunday that while Canada is not seeking a trade war with the new administration, the government would be forced to retaliate if the US imposes tariffs on Canadian products. On the other hand, rising crude oil prices, a key export for Canada, could provide some support to the CAD, as higher oil prices typically benefit the currency, given Canada’s status as the largest oil exporter to the United States.
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