• Canadian Dollar strengthens as US-EU trade tensions weigh on the Greenback.
• Fresh tariff threats linked to Greenland tensions rattle confidence in US assets.
• Light economic calendar keeps attention firmly on trade and geopolitical headlines.

The Canadian Dollar (CAD) extends its advance against the US Dollar (USD) on Tuesday, as escalating trade tensions between the United States and the European Union weigh heavily on the Greenback. At the time of writing, USD/CAD trades around 1.3830, near a two-week low.

Market sentiment has been rattled after US President Donald Trump doubled down on his push to annex Greenland, announcing fresh tariffs on eight European nations unless and until “a deal is reached for the complete and total purchase of Greenland.”

The renewed tariff threat comes at a sensitive time, with the Trump administration’s trade measures already under scrutiny at the US Supreme Court, which is expected to rule soon on the legality of using the International Emergency Economic Powers Act (IEEPA) to impose such tariffs.

Trump’s repeated use of tariffs as a policy weapon is weighing on confidence in US assets, pressuring the Dollar and supporting demand for other G10 currencies.

European leaders have pushed back against the tariff threats, reaffirming that the bloc stands ready to deploy countermeasures if needed. Attention has also turned to Europe’s large holdings of US assets, estimated at around $10 trillion, which some analysts say could be used as economic leverage if tensions escalate. The discussion resurfaced after reports that Danish pension fund AkademikerPension is moving to exit its US Treasury holdings.

On the data front, the economic calendar is relatively light in both the United States and Canada on Tuesday. The only notable release is the US ADP Employment Change (four-week average), which came in at 8K for the week ending December 27, easing from 11.8K previously.

Meanwhile, the latest Canadian Consumer Price Index (CPI) data released on Monday reinforced expectations that the Bank of Canada (BoC) will keep interest rates unchanged in the months ahead, as inflation remains above the central bank’s 2% target.

In contrast, despite fading near-term rate-cut expectations, markets continue to price in two interest-rate cuts by the Federal Reserve (Fed) later this year.

Looking ahead, attention turns to US President Donald Trump, who is set to hold talks on Greenland tensions on the sidelines of the World Economic Forum in Davos, keeping geopolitical and trade risks firmly in focus.