• USD/CAD slips to near six-month lows on sustained Dollar weakness.
• Tariff threats from Washington keep traders cautious.
• Markets await the Federal Reserve and Bank of Canada interest rate decisions scheduled for Wednesday.

The Canadian Dollar (CAD) trades on the front foot against the US Dollar (USD) on Tuesday, supported by sustained weakness in the Greenback, even as renewed tariff threats from Washington limit the Loonie’s upside. At the time of writing, USD/CAD is trading around 1.3637, its lowest level since July 2025.

US President Donald Trump revived trade tensions over the weekend, warning in a Truth Social post that he would impose a 100% tariff on all Canadian goods if Canada finalizes a trade deal with China. He accused Ottawa of becoming a “drop-off port” for Chinese products entering the United States.

However, Canadian Prime Minister Mark Carney sought to cool the rhetoric, saying Trump’s tariff threats should be seen as tactical positioning ahead of the upcoming United States-Mexico-Canada review. Carney noted that Canada is entering a formal review of the USMCA Agreement this year and said he expects a “robust review”.

The remarks follow Carney’s comments earlier this week that Canada has “no intention” of pursuing a full free-trade agreement with China, stressing that recent discussions have focused only on limited tariff reductions, not a broad trade deal.

Meanwhile, the US Dollar remains under sustained selling pressure, driven by Trump’s aggressive trade rhetoric, growing concerns over Federal Reserve independence, and rising risks of another US government shutdown.

The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, is trading near four-month lows around 96.61.

On the data front, the ADP Employment Change four-week average came in at 7.75K, slightly below the previous 8K reading. Meanwhile, the Housing Price Index rose 0.6% MoM in November, up from 0.4% in October and above expectations of 0.3%. US Consumer Confidence is due later in the American session.

Looking ahead, markets are also bracing for a twin risk event on Wednesday, with interest rate decisions from both the Bank of Canada (BoC) and the Federal Reserve (Fed). Both central banks are widely expected to keep rates on hold, shifting the focus to the post-meeting statements and press conferences for guidance on the policy path.

The Fed is expected to stick to a gradual easing bias, with markets currently pricing in around two rate cuts this year. Meanwhile, the BoC is also seen holding steady, but traders will be watching closely for any signals on whether a rate hike could come back into play later this year.