USD/CAD depreciates to near 1.3800 as Canadian Dollar gains on early election outcome

• USD/CAD weakens due to expectations that Canada's ruling Liberal Party will retain power following Monday's election.
• The Liberals have to secure the 172 seats required for a majority in the 343-seat House of Commons.
• The US Dollar finds support amid signs of easing US-China trade tensions.

The USD/CAD pair remains under pressure for the second straight session, hovering around 1.3820 during Asian trading hours on Tuesday. The pair weakens as the Canadian Dollar (CAD) gains modestly, supported by early election results in Canada.

According to projections by CTV News and CBC, Canada's ruling Liberal Party has retained power following Monday's election, although it remains uncertain whether they will secure a majority. Prime Minister Mark Carney had sought a strong mandate to manage US President Donald Trump's tariffs and annexation threats. However, CBC reported that the Liberals had yet to secure the 172 seats needed for a majority in the 343-seat House of Commons.

The final outcome may take time to confirm, particularly as results from British Columbia, where polls closed last, could prove decisive. Meanwhile, the right-leaning Conservative Party showed a stronger-than-expected performance, advocating for change after more than nine years of Liberal leadership. If Carney ends up leading a minority government, he will need to negotiate with other parties to maintain power -- a situation that historically results in Canadian governments lasting no longer than about 2.5 years.

Despite the CAD's strength, further downside for USD/CAD may be limited by broader US Dollar (USD) resilience. The USD finds support amid signs of easing US-China trade tensions. US President Donald Trump indicated a willingness to roll back tariffs on China, while Beijing announced tariff exemptions for certain US goods, raising hopes that the prolonged trade war between the world's two largest economies may be nearing an end.

President Trump noted that progress had been made and that he had spoken with Chinese President Xi Jinping. However, a spokesperson from the Chinese embassy firmly denied any ongoing negotiations, stating, "China and the US are not having any consultation or negotiation on tariffs," and urged Washington to "stop creating confusion."