USD/CAD gathers strength to near 1.4500 as tariff decision looms

• USD/CAD rises to around 1.4500 in Thursday's late American session.
• Trump reiterates the threat of imposing tariffs on Canada and Mexico on Saturday.
• Fed left rates unchanged and sees no hurry to cut again.

The USD/CAD pair gains momentum to around 1.4500 during the late American session on Thursday. The Canadian Dollar (CAD) remains under selling pressure as US President Donald Trump repeated his threat of tariffs on goods from Canada and Mexico. Later on Friday, the US Personal Consumption Expenditures (PCE), Personal Income/Spending, and the Chicago Purchasing Managers' Index (PMI) will be released.

Trump said late Thursday that the US plans to impose a flat 25% import tax "because of fentanyl" on all goods crossing the border into the US from Canada or Mexico. The announcement of the first Canada and Mexico tariff policies is coming on Saturday.

The potential for a trade conflict triggered by new U.S. tariffs on Canadian exports could weigh on the Loonie and act as a tailwind for USD/CAD. The US and Canada are major trading partners, exchanging $2.7 billion in goods and services across their shared border each day in 2023, according to Canadian government figures.

Additionally, the US Federal Reserve (Fed) left its overnight borrowing rate unchanged in a range between 4.25%-4.50% at its January meeting on Wednesday. Fed Chair Jerome Powell noted that officials are not in a rush to lower interest rates, adding the central bank is pausing to see further progress on inflation following a string of rate cuts in 2024.

Wednesday's hawkish hold by the Fed could underpin the US Dollar (USD) broadly in the near term. Markets are pricing in a funds rate of about 3.9% by the end of 2025, implying a 61% chance of two-quarter percentage point reductions this year, according to CME Group data.