- USD/CAD gained strength as trade war tensions escalated following Trump’s decision to increase tariffs on steel and aluminum imports.
- President Trump increased the import tariff on steel and aluminum to a flat 25%, with no exceptions or exemptions
- Canada’s Industry Minister criticized the tariffs as “completely unjustified” and emphasized, “We will provide a clear and measured response.
USD/CAD extends its gains for the second consecutive day, trading around 1.4330 during Tuesday’s Asian session. The pair strengthened following rising trade tensions, triggered by US President Donald Trump’s announcement on Monday to increase tariffs on steel and aluminum imports to a flat 25%, with no exceptions. This move is intended to aid struggling domestic industries but also heightens the risk of a broader trade conflict.
Trump signed proclamations raising the US aluminum tariff rate from 10% to 25%, eliminating country exemptions, quota agreements, and many product-specific tariff exclusions for both metals. A White House official confirmed that the new tariffs will take effect on March 4, with further actions on microchips and vehicles being considered in the coming weeks.
In 2024, Canada supplied nearly 80% of US primary aluminum imports, and in 2023, steel imports accounted for roughly 23% of US steel consumption, with Canada, Brazil, and Mexico as the leading suppliers.
Canada’s Industry Minister Francois-Philippe Champagne strongly criticized the tariffs, calling them “totally unjustified” and highlighting the importance of Canadian steel and aluminum to essential US industries such as defense, shipbuilding, energy, and automotive manufacturing. He also added, “We are consulting with our international partners and will respond clearly and in a measured way.”
The US Dollar Index (DXY), which tracks the US Dollar against six major currencies, continues to rise for the fourth straight session, nearing 108.50 at the time of writing. The Greenback benefits from expectations that the US Federal Reserve (Fed) will hold interest rates steady this year, following the January jobs report, which showed slowing job growth but a lower unemployment rate.
A Reuters poll of economists now indicates that the Federal Reserve is unlikely to cut interest rates until the next quarter due to ongoing inflation concerns. Many economists who previously anticipated a March rate cut have revised their predictions, with most now expecting at least one rate cut by June, though there is still uncertainty regarding the exact timing.
Outlook for USD/CAD and Trade Relations
As trade tensions continue to mount, analysts predict further volatility in the USD/CAD pair. With a potential for additional tariffs or retaliatory actions, traders will closely monitor the situation as it evolves. The 1.4350 level may serve as a critical threshold for future price movements, influenced by developments in both trade relations and domestic economic policies.
