The USD/CAD exchange rate rose to 1.3728 during Asian trading but then fell back to 1.3689, showing a small decline for the day. Reports suggest that progress on a US-Canada trade deal could lead to a drop in the USD/CAD rate and boost the Canadian dollar.

NATO Spending Commitment

Canada has agreed to meet the NATO spending target of 2% of GDP, which aligns with a request from the US. At the same time, Canada has decided not to impose tariffs on steel and aluminum, and Alberta has lifted its liquor boycott. The US ambassador to Canada confirmed that confidential discussions are taking place. Some reports indicate that a trade agreement could be reached before the G7 meetings on June 15 in Canada. Overall, these developments hint at a stronger stance by Canadian officials in working closely with the US, affecting the USD/CAD exchange rate. Initially, the rise of the pair during Asian trading hours followed by a retreat seems technical, likely influenced by low liquidity. The drop to 1.3689 aligns with the growing narrative: progress in trade talks is putting pressure on the US dollar, while easing tensions allows for Canadian dollar strength.

Market Implications

Canada’s decision to meet NATO defense spending targets, which was a previous point of contention, shows goodwill and fulfills part of Washington’s expectations. This is significant. Furthermore, Canada’s decision to avoid tariffs on steel and aluminum, along with Alberta ending its liquor boycott, helps reduce tensions. The timing of these events is not coincidental. So, what does this mean for the market? With the ambassador confirming discussions and increasing speculation about a possible agreement before mid-June, attention will shift to the G7 summit deadline. If expectations hold or grow, we anticipate the USD/CAD pair will stay under moderate downward pressure, reflecting a rising interest in the Canadian dollar. Traders might begin to anticipate better trade conditions, possibly looking to sell on price rallies. In the short term, the risk lies in the timing of these hopes. If no deal seems likely by the second week of June, there could be a reversal. However, if we continue to see signs of cooperation—through public statements, policy changes, or scheduled press briefings—then the current softness in USD/CAD may continue or deepen. Traders should pay less attention to minor exchange rate changes during off-hours and focus more on whether policy changes are genuine. Not every headline will have an impact, but when official confirmations align diplomatic and economic efforts, it usually affects the market. For trade strategies, fading intraday spikes with tight stops may lower risks. Timing is crucial; any confirmation of a deal before the G7 could catch the market off guard, leading to a sharp price adjustment. We are closely monitoring this situation. Create your live VT Markets account and start trading now.

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