The USD/CAD currency pair edged higher on Tuesday during North American trading hours, holding firm near the 1.3855 mark. The modest upward momentum comes as the US Dollar (USD) strengthens slightly, underpinned by market optimism over potential de-escalation in the ongoing US-China trade conflict.
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At the time of writing, the US Dollar Index (DXY), which measures the strength of the USD against a basket of six major currencies, hovered near 99.10, indicating mild bullish sentiment in favor of the Greenback.
US-China Trade Tensions Show Signs of Cooling
One of the key catalysts driving the USD/CAD move is the latest development in the US-China trade landscape. According to a Reuters report, China has decided to waive the 125% tariff on US ethane imports, originally imposed earlier this month. This unexpected gesture is being perceived as a constructive step in reducing trade hostilities between the world’s two largest economies.
The decision holds significance given that China imports nearly half of US ethane exports, according to the US Energy Information Administration (EIA). Investors interpret this move as a symbolic but strategic effort to pave the way for renewed trade dialogue.
Additionally, US Treasury Secretary Scott Bessent stated that the current level of tariffs imposed by both nations is “unsustainable,” reinforcing the notion that a reset of trade terms might be inevitable. However, Bessent stressed that China should initiate the next round of talks, a condition that continues to keep traders cautious.
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Soft US Jobs Data Caps USD Strength
Despite the mild optimism, the USD’s gains were tempered by weaker-than-expected US economic data. The US JOLTS Job Openings report for March came in at 7.19 million, missing both market expectations of 7.5 million and February’s revised figure of 7.48 million. This miss signals a cooling labor market, which could affect the Federal Reserve’s policy stance moving forward.
Canadian Dollar Gets Temporary Relief on Auto Tariff Easing Hopes
On the Canadian front, the Loonie found some support following a Bloomberg report that US President Donald Trump is considering easing tariffs on certain auto parts. These components are critical in North American automotive supply chains, and any relief could benefit Canada, a major auto exporter to the US.
This has injected some short-term optimism into the Canadian Dollar (CAD), even as domestic economic indicators paint a mixed picture.
What’s Next: Canada GDP in Focus
Looking ahead, traders are eyeing Canada’s monthly Gross Domestic Product (GDP) figures for February, due out Wednesday. The consensus forecast anticipates flat growth, compared to the 0.4% increase recorded in January. A weaker-than-expected GDP number could add downward pressure on the CAD, potentially keeping the USD/CAD pair elevated.
Key Takeaways:
- USD/CAD trades above 1.3800 as trade optimism boosts sentiment.
- China waives tariffs on US ethane, signaling de-escalation intentions.
- Weak US job data caps broader USD rally.
- Canadian Dollar supported by possible US auto tariff relief.
- Upcoming Canadian GDP data likely to be a key short-term driver.
The interplay of trade diplomacy, economic data, and central bank sentiment continues to shape USD/CAD price action. Investors should stay alert to further policy announcements and macroeconomic releases from both countries.