USD/CAD trades cautiously above 1.4400 as Trump delays tariffs on Canada

• USD/CAD struggles above 1.4400 as US President Trump postpones his 25% tariff orders on Canada and Mexico.
• The BoC sees the risk of inflation undershooting their target of 2%.
• Investors await the US JOLTS Job Openings data for December.

The USD/CAD pair trades with caution around 1.4430 in Tuesday’s European session. The Loonie pair is almost 2.6% down from its Monday’s high of 1.4800 as the Canadian Dollar (CAD) strengthens after United States (US) President Donald Trump postponed his order to impose 25% tariffs on Canada and Mexico.

President Trump decided to delay tariff plans for 30 days after his North American peers agreed to tighten restrictions on their borders through which illegal immigrants and fentanyl were entering the US. This scenario has resulted in a sharp increase in the appeal of the Canadian Dollar (CAD).

The event has also indicated that Trump is using the tariff tool to gain an upperhand in negotiations with his trading partners and close better deals. The scenario has offered a big relief to the Canadian Dollar in the short-term but its longer-term outlook remains uncertain on the back of growing fears that inflation in Canada will undershoot the Bank of Canada’s (BoC) target of 2%.

Investors expect the BoC to reduce interest rates by 25 basis points (bps) to 2.75% in the policy meeting in March.

Meanwhile, the US Dollar (USD) has weakened as Trump’s decision to postpone tariffs on Canada and Mexico has diminished its safe-haven appeal. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, strives to gain ground near Monday’s low of 108.40.

On the economic front, investors will focus on the US JOLTS Job Openings data for December, which will be published at 15:00 GMT. Economists expect that employers posted 8 million fresh jobs, marginally lower than almost 8.10 million in November.