Canadian Dollar strengthens as Trump pauses 50% tariffs and USD slides before FOMC Minutes

The USD/CAD pair meets with fresh supply during the Asian session on Wednesday and, for now, seems to have stalled its recovery from the lowest level since June 3, touched earlier this week. Spot prices currently trade around the 1.3880 area, though the downside seems cushioned as traders keenly await the release of FOMC Minutes.

The Canadian Dollar (CAD) gets a minor lift after US President Donald Trump announced a pause on 50% tariffs against Canada for a three-day period following overnight negotiations with Canadian Prime Minister Mark Carney. Moreover, crude oil prices climbed to a nearly three-week high amid the US-Iran standoff over the Strait of Hormuz, further underpinning the commodity-linked Loonie. This, along with the emergence of some US Dollar (USD) selling, exerts downward pressure on the USD/CAD pair.

The US data released last week pointed to signs of cooling inflation and a slowdown in consumer spending, prompting traders to scale back their bets for an immediate interest rate hike by the US Federal Reserve (Fed). This, in turn, keeps a lid on the USD recovery from a two-month low, touched on Monday. However, inflation risks stemming from rising energy prices might force the US central bank to adopt a more hawkish stance, which remains supportive of elevated US bond yields and should limit USD losses.

Moreover, CME Group's FedWatch Tool indicates that traders are still pricing in around a 68% chance of a Fed rate hike by the year-end. Hence, FOMC Minutes will be scrutinized closely for more cues about the Fed's policy path, which will play a key role in influencing the USD and provide a fresh impetus to the USD/CAD pair. Nevertheless, the fundamental backdrop suggests that the path of least resistance for spot prices remains to the downside, and any attempted recovery move is more likely to be sold into.

Technical Analysis

The USD/CAD pair holds above the 200-day Simple Moving Average (SMA) near 1.3848, suggesting a supportive broader trend backdrop. A convincing break below, however, would expose the next relevant support near the 1.3820-1.3815 region before spot prices weaken further below the 1.3800 mark. On the topside, initial resistance is seen at 1.3910, or the overnight swing high, above which the momentum could extend further towards reclaiming the 1.4000 psychological mark.