USD/CAD holds gains above 1.4300 ahead of US PCE Price Index, Canada's GDP data

• USD/CAD gains amid rising risk aversion fueled by concerns over impending US auto tariffs.
• US President Donald Trump has threatened additional measures against the EU and Canada if they retaliate.
• Traders now focus on the US PCE Price Index and Canada's GDP data due on Friday.

USD/CAD continues its upward momentum for the second consecutive day, trading around 1.4310 during Asian hours on Friday. The pair benefits from increased risk aversion driven by growing concerns over impending US auto tariffs.

On Wednesday, US President Donald Trump signed an order imposing a 25% tariff on auto imports and warned of further measures against the EU and Canada if they retaliate. This escalation in trade tensions is likely to strain relations with key trading partners, particularly ahead of the reciprocal tariffs set to take effect on April 2. The Canadian Dollar (CAD) faces headwinds, as approximately 75% of Canada's exports-- including Oil and autos--are destined for the United States (US).

However, the upside for the USD/CAD pair may be limited as the US Dollar (USD) remains under pressure due to declining Treasury yields. At the time of writing, the 2-year bond yield stands at 3.99%, while the 10-year yield is at 4.35%. However, Moody's has cautioned that rising tariffs and tax cuts could significantly widen the US government deficit, potentially leading to a debt rating downgrade and higher Treasury yields.

On the economic front, US Gross Domestic Product (GDP) expanded at an annualized rate of 2.4% in Q4 2024, surpassing the 2.3% forecast, according to data released on Thursday. Investors are now focused on Friday's US Personal Consumption Expenditures (PCE) Price Index for further clarity on the Federal Reserve's (Fed) monetary policy outlook. Meanwhile, Canada's Gross Domestic Product (GDP) data will also be eyed later in the North American session.