USD/CAD falls back from 1.4400, BoC-Fed policy in focus

USD/CAD retreats from 1.4400 as the safe-haven appeal of the US Dollar diminishes after Trump rolled back 25% tariff proposal on Colombia.
Investors expect the Fed to leave interest rates steady, while the BoC is anticipated to cut them by 25 bps on Wednesday.
US President Trump is expected to place 25% on Canada right on the first day of February.

Sagar Dua FXStreet

The USD/CAD pair retreats after failing to break above the round-level resistance of 1.4400 in Monday’s North American session. The Loonie pair ticks down as the US Dollar (USD) falls back after its safe haven diminished. United States (US) President Donald Trump put his proposal of imposing 25% tariffs on Colombia on hold

Over the weekend, Trump threatened to raise 25% tariffs on its South American trading partner as they refused to accept the entry of military flights from the US carrying illegal immigrants who have the nationality of Colombia. This scenario boosted the US Dollar’s safe-haven appeal as investors expected that it would set the tone for a global trade war. However, Trump vetoed his proposal after Colombia accepted his terms, which squared the USD’s appeal.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, resumes its downside journey towards the seven-week low of 106.70.

Going forward, investors will focus on the Federal Reserve’s (Fed) monetary policy decision, which will be announced on Wednesday. The Fed is expected to announce a pause in the current policy-easing spell and leave interest rates unchanged in the range of 4.25%-4.50%, according to the CME FedWatch tool. Investors will pay close attention to Fed Chair Jerome Powell’s press conference after the policy announcement for fresh interest rate guidance.

Meanwhile, the Canadian Dollar (CAD) remains broadly weak as investors fear that Trump will impose 25% tariffs on Canada on February 1. The Wall Street Journal (WSJ) reported on early Monday that “momentum is growing among US President Trump’s advisers to place 25% tariffs on Mexico and Canada as soon as February 1.

Investors should brace for significant volatility in the Loonie this week. The Bank of Canada (BoC) is scheduled to announce its first monetary policy decision of 2025 on Wednesday. The BoC is expected to cut interest rates by 25 basis points (bps) to 3%.

Economic Indicator

BoC Interest Rate Decision

The Bank of Canada (BoC) announces its interest rate decision at the end of its eight scheduled meetings per year. If the BoC believes inflation will be above target (hawkish), it will raise interest rates in order to bring it down. This is bullish for the CAD since higher interest rates attract greater inflows of foreign capital. Likewise, if the BoC sees inflation falling below target (dovish) it will lower interest rates in order to give the Canadian economy a boost in the hope inflation will rise back up. This is bearish for CAD since it detracts from foreign capital flowing into the country.

EUR/USD keeps the rangebound trade near 1.1850

EUR/USD is still under pressure, drifting back towards the 1.1850 area as Monday’s session draws to a close. The modest decline in spot comes as the US Dollar picks up a bit of support, while thin liquidity and muted volatility, thanks to the US market holiday, are exaggerating price swings and keeping trading conditions choppy.

GBP/USD flirts with daily lows near 1.3630

GBP/USD has quickly given back Friday’s solid gains, turning lower at the start of the week and drifting back towards the 1.3630 area. The focus now shifts squarely to Tuesday’s UK labour market report, which is likely to keep the quid firmly in the spotlight and could set the tone for Cable’s next move.

Gold battle around $5,000 continues

Gold is giving back part of Friday’s sharp rebound, deflating below the key $5,000 mark per troy ounce as the new week gets underway. Modest gains in the US Dollar are keeping the metal in check, while thin trading conditions, due to the Presidents Day holiday in the US, are adding to the choppy and hesitant tone across markets.

AI Crypto Update: Bittensor eyes breakout as AI tokens falter

The artificial intelligence (AI) cryptocurrency segment is witnessing heightened volatility, with top tokens such as Near Protocol (NEAR) struggling to gain traction amid the persistent decline in January and February.

The week ahead: Key inflation readings and why the AI trade could be overdone

It is likely to be a quiet start to the week, with US markets closed on Monday for Presidents Day. European markets are higher across the board and gold is clinging to the $5,000 level after the tamer than expected CPI report in the US reduced haven flows to precious metals.

XRP steadies in narrow range as fund inflows, futures interest rise

Ripple is trading in a narrow range between $1.45 (immediate support) and $1.50 (resistance) at the time of writing on Monday. The remittance token extended its recovery last week, peaking at $1.67 on Sunday from the weekly open at $1.43.