Canadian Dollar strengthens as Trump pauses 50% tariffs, Oil prices climb

• USD/CAD falls 0.62% on Wednesday, with the Canadian Dollar benefiting from a temporary easing of trade tensions with the United States.
• Rising Oil prices also support the Loonie as tensions between the United States and Iran fuel concerns over supply.
• The US Dollar remains under pressure ahead of the Fed Minutes, closely watched for fresh clues about the interest-rate outlook.

USD/CAD declines on Wednesday and trades around 1.3810 at the time of writing, down 0.62% on the day. The Canadian Dollar (CAD) benefits from some relief on the trade front after US President Donald Trump decided to pause the implementation of 50% tariffs against Canada for three days, while rising Oil prices provide additional support to the Loonie.

Donald Trump announced the tariff pause following negotiations with Canadian Prime Minister Mark Carney. The decision temporarily eases concerns surrounding trade relations between the United States (US) and Canada and supports the Canadian currency, although the short duration of the suspension maintains significant uncertainty over the outcome of the negotiations.

The Canadian Dollar also benefits from rising Oil prices, a development generally supportive of the currency given Canada's role as a major energy supplier to the United States. Crude Oil prices reach a nearly three-week high as tensions between Washington and Tehran over the Strait of Hormuz reinforce concerns about global supply.

Meanwhile, the US Dollar (USD) struggles to recover after reaching a two-month low on Monday. Recent US economic data show signs of cooling inflation and slowing consumer spending, prompting investors to scale back expectations of an immediate monetary policy tightening by the Federal Reserve (Fed).

Inflation risks stemming from higher energy prices could, however, encourage the Fed to maintain a restrictive stance. This prospect helps keep US Treasury yields elevated and could limit the extent of the Greenback's decline.

Attention now turns to the Federal Open Market Committee (FOMC) Minutes, due on Wednesday. According to the CME Group FedWatch Tool, markets still see around a 68% chance of a Fed rate hike by the end of the year. The account of the latest meeting will therefore be closely scrutinized to assess the extent to which policymakers remain concerned about inflation risks and to obtain fresh clues about the outlook for US monetary policy.

In the near term, USD/CAD remains caught between improving sentiment toward the Canadian Dollar, supported by the tariff pause and higher Oil prices, and investor caution ahead of the Fed Minutes. A more hawkish-than-expected message from the US central bank could provide support to the US Dollar, while signs of greater caution over rate hikes could increase bearish pressure on the pair.

US-Canada trade frictions ease as Trump pauses tariffs pending deal

Analysts at BNY Mellon note that President Donald Trump has “paused the scheduled 50% tariffs on certain Canadian imports for three days” after holding trade talks with Canadian Prime Minister Mark Carney, with the US president saying the two countries “have a deal,” subject to final documentation. The tariffs, announced last month, were due to hit “roughly $20bn of Canadian goods, including hockey sticks, wine and other consumer-oriented products,” and were imposed under “Section 338 of the Tariff Act of 1930 in response to what Washington called Canadian trade discrimination in motor vehicles, alcohol and dairy.” BNY Mellon adds that the move came amid broader US–Canada trade tensions, with Trump already imposing tariffs on metals, lumber and auto parts, and points out that the article “does not provide any official Canadian response or further details on the terms of the reported deal.”