The Canadian Dollar (CAD) came under pressure overnight after US President Donald Trump announced the termination of trade negotiations with Canada, reportedly in response to an Ontario-backed anti-tariff advertisement, according to ING FX analyst Francesco Pesole.
Limited Market Reaction but Rising Policy Risks
While the announcement led to only a modest 0.2% rise in USD/CAD, Pesole noted that the muted reaction reflected the lack of progress in recent US-Canada trade discussions. Additionally, the currency pair was already trading at a 2% short-term overvaluation based on ING’s fair value model before Trump’s comments.
Increased Probability of a BoC Rate Cut
ING believes this latest development raises the likelihood of a Bank of Canada (BoC) rate cut at next week’s policy meeting. The bank expects a 25-basis-point reduction, in line with market pricing, as trade uncertainty and existing US tariffs continue to weigh on business investment and hiring in Canada.
Pesole added that while September’s inflation data exceeded expectations, the broader weakness in economic activity and employment should convince policymakers to ease further.
Outlook: Near-Term USD/CAD Upside, Longer-Term Correction
According to ING, the BoC is unlikely to rule out additional easing, which could keep the Canadian Dollar under pressure across major crosses in the near term.
Pesole expects USD/CAD to face upside risks, with potential moves above 1.4100, but maintains that US Dollar weakness later in the year could pull the pair back toward 1.3800 by year-end.