The USD/CAD pair edged lower during the early Asian session on Tuesday, trading near 1.3835 as mounting fears over a U.S. economic slowdown and fresh concerns about the Federal Reserve’s independence pressured the U.S. Dollar (USD). The Canadian Dollar (CAD) capitalized on the Greenback’s weakness, despite downside risks linked to oil price volatility.
Investor sentiment soured after White House economic advisor Kevin Hassett revealed that President Donald Trump is actively exploring the possibility of firing Federal Reserve Chair Jerome Powell. Trump further intensified pressure on the central bank, warning in a Truth Social post that the U.S. economy risks deceleration unless interest rates are slashed immediately. This political interference narrative has prompted renewed scrutiny over the Fed’s autonomy and has driven the U.S. Dollar to a three-year low.
Global trade uncertainty added to the bearish mood, with tensions flaring after China issued a warning to other nations against making trade deals with the U.S. that could undermine Beijing. “If uncertainty continues for an extended period of time — meaning multiple quarters — I think that becomes more challenging for corporate earnings and decision-making, and we’ve seen some of that in the earnings season so far,” said Robert Haworth, senior investment strategist at U.S. Bank.
Loonie Gains Despite Oil Price Pressure
Despite the USD’s broad-based weakness, the Canadian Dollar’s upside remains tempered by recent softness in crude oil prices. Hopes for progress in negotiations between the U.S. and Iran have led to a pullback in oil prices, undermining support for the commodity-linked CAD. As Canada is the largest oil exporter to the U.S., lower crude prices often correlate with declines in the Canadian Dollar’s value.
Traders Eye Central Bank Signals and Oil Market Developments
Looking ahead, traders will focus on developments in U.S. monetary policy and geopolitical trade dynamics, alongside energy market trends. While the USD/CAD pair is under pressure from the Greenback’s ongoing sell-off, sustained weakness in oil or any hawkish signals from the Fed could alter momentum.
For now, the pair remains tilted to the downside, with Fed independence concerns and trade tensions continuing to drive the narrative.
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