USD/CAD extends recovery to near 1.3670 as US Dollar gains ground

• USD/CAD moves higher to near 1.3670 as the US Dollar gains on hopes of the US-EU trade deal.
• Trump’s tariffs appear to be less fearful than they appeared prima facie.
• Monthly Canadian Retail Sales declined by 1.1% in May, as expected.

The USD/CAD pair trades 0.25% higher to near 1.3670 at the start of the European trading session on Friday. The Loonie pair rises as the US Dollar (USD) gains ground on hopes that the impact of the tariff policy introduced by United States (US) President Donald Trump since his return to the White House will be limited on the economy.

Investors become increasingly confident of a limited impact of Trump’s tariff policy as Washington is closing deals with his major trading partners. Recent announcement of a tariff deal between the US and Japan, and rising hopes of a US-EU trade pact have bolstered investors’ confidence that US Inc. will not face raw material concerns.

The US Dollar had been on a rough road in past few months as market experts warned that Trump-led tariff policy will lead to supply chain concerns and will increase inflationary pressures, given that the burden of higher duty will be borne by importers.

For fresh cues on the impact of tariffs on inflation, investors await the Federal Reserve (Fed) monetary policy announcement next week. Fed officials have stated lately that the impact of tariffs has started feeding into prices. According to the CME FedWatch tool, the Fed is certain to leave interest rates unchanged in the range of 4.25%-4.50%.

Meanwhile, an expected decline in the Canada Retail Sales data for May has weighed on the Canadian Dollar (CAD). On Thursday, Statistics Canda reported that Retail Sales, a key measure of consumer spending, fell by 1.1%, as expected. The consumer spending measure rose by 0..3% in April.