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The USD/CAD pair shows a correction after significant intraday growth.
The Canadian dollar weakened under selling pressure after U.S. President Donald Trump announced plans to impose 25% tariffs on imports from Canada and Mexico, set to take effect in February. Meanwhile, the U.S. dollar is showing slight recovery from a two-week low, as market participants anticipate that Trump's protectionist policies could lead to higher inflation and prompt the Federal Reserve to maintain a tight monetary policy. This expectation is preventing the USD/CAD pair from incurring larger losses, although various factors continue to cap further growth.
Investors expect the Federal Reserve to cut interest rates twice by the end of the year due to signs of declining inflation in the U.S. This has led to a drop in U.S. Treasury yields, which, combined with positive sentiment in equity markets, limits demand for the dollar as a safe-haven asset. Additionally, rising crude oil prices and renewed buying interest support the commodity-linked Canadian dollar, further restraining USD/CAD's upward movement.
Traders are closely monitoring the release of new Canadian consumer inflation data, which could significantly influence the currency's exchange rate. The Consumer Price Index (CPI) report in Canada will be a critical factor shaping expectations for future interest rate adjustments by the Bank of Canada, and, consequently, the direction of the Canadian dollar and USD/CAD pair.
With no significant economic data scheduled for release from the U.S. on Tuesday, the dollar's performance will be influenced by Treasury yields and overall market sentiment.
From a technical perspective, oscillators remain in positive territory, indicating that bulls still hold control of this pair for now. However, traders should be cautious of any developments that could shift market sentiment.
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