The USD/CAD pair declined to approximately 1.4280, reflecting a dip in the US Dollar, driven by shifting perceptions of President Trump’s tariffs on the global economy. The US Dollar Index (DXY) fell to around 103.95, retreating from a previous peak of 104.45.
Tariff concerns lessened as Trump indicated potential exemptions for many countries. This diminishes the anticipated economic impact of the trade war, subsequently reducing the appeal of the US Dollar.
February Services Pmi Surpasses Expectations
February’s Services PMI rose to 54.3, surpassing expectations of 51.2 and previous readings. This week, attention is on the February US Personal Consumption Expenditure Price Index data, vital for assessing inflation.
Although the Canadian Dollar has gained against the US Dollar, the Bank of Canada plans to maintain a dovish stance despite inflationary pressures. Macklem noted that the increase in February’s Consumer Price Index is not influenced by US tariffs.
The movement in the USD/CAD pair suggests that traders have priced in a reduced likelihood of aggressive trade measures following the tariff revisions. As Trump’s stance softened, market sentiment adjusted, prompting a selloff in the US Dollar. The dip in the Dollar’s broader performance, seen in the Dollar Index falling from 104.45 to 103.95, underlines how swiftly perception shifts can influence currency valuations.
Economic data continues to play a strong role in shaping expectations. The unexpected strength in February’s Services PMI, which climbed to 54.3 from the previous reading and outperformed forecasts of 51.2, contradicts concerns of an economic slowdown. That has introduced some resilience to the Dollar, even against the backdrop of trade policy uncertainty. However, with Personal Consumption Expenditure data scheduled for release, traders should brace for further changes based on inflation expectations.
Bank Of Canada Maintains Dovish Stance
Meanwhile, the Canadian Dollar has benefited from the slide in the Greenback, but the Bank of Canada has shown no urgency to shift its stance. Macklem’s remarks made it clear that the latest CPI movement in Canada is being driven by internal factors rather than external tariff effects. That suggests the central bank sees no need for immediate tightening, even as some inflationary pressures persist.
Derivative traders will need to balance these forces. If inflation data out of the US surprises to the upside, rate expectations could shift, potentially reversing some of the Dollar’s recent losses. On the other hand, if economic moderation remains the dominant theme, weakness in the Dollar may persist, particularly given the less aggressive rhetoric on trade. The Bank of Canada’s cautious approach also implies that any strengthening in the Canadian Dollar may be contained without a more hawkish stance.
In the coming weeks, closely watching macroeconomic releases and central bank communication will be key. The sharp reaction to Trump’s latest policy signals serves as a reminder that sentiment can shift swiftly, leaving little room for complacency.
