The USD/CAD pair paused its two-day losing streak on Friday, trading near 1.3860 during the Asian session as market activity remained muted due to the Good Friday holiday. The US Dollar (USD) found renewed support following hawkish comments from Federal Reserve Chair Jerome Powell, who cautioned that persistent inflation and a cooling economy could challenge the central bank’s dual mandate, heightening concerns about stagflation.
Despite Powell’s warnings, market sentiment was further shaken after former President Donald Trump criticized the Fed Chair’s remarks. Still, the CME FedWatch Tool indicated that traders continue to price in approximately 86 basis points of rate cuts by the end of 2025, with the first expected as early as July.
US Data Offers Mixed Signals
The US labor market delivered a mixed batch of data. Initial Jobless Claims fell to 215,000 for the week ending April 12—beating expectations and down from a revised 224,000. However, Continuing Claims climbed by 41,000 to reach 1.885 million for the week ending April 5, signaling potential softening in employment conditions.
Canadian Dollar Supported by Oil Rally
On the other side of the pair, the Canadian Dollar (CAD) found some strength, supported by a rally in crude oil prices. Oil surged after the United States announced fresh sanctions on Iranian exports, fueling concerns over tighter global supply. Given Canada’s status as a major oil exporter, the move lent support to the commodity-linked CAD.
BoC Flags Recession Risk from Tariff Threats
Adding a layer of uncertainty, the Bank of Canada (BoC) issued a warning that escalating global trade tensions—particularly a return to Trump-era tariffs—could trigger a spike in inflation and drive Canada into a “deep recession.” While the central bank stopped short of releasing an updated economic forecast, it outlined two potential scenarios to reflect the unpredictability of future US trade policy and its impact on the Canadian economy.
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