USD/CAD holds gains near 1.3850 as Canadian Liberals fail to secure majority government

• USD/CAD strengthens as the Canadian Liberal Party retains power but falls short of a majority government.
• The Liberals led in 167 electoral districts, below the 172 needed for a majority in the 343-seat House of Commons.
• The US Dollar gains support from rising optimism over progress in US-China trade relations.

USD/CAD has recovered its intraday losses, trading around 1.3840 during early European hours on Tuesday. The pair appreciates as the Canadian Dollar (CAD) loses ground following election results in Canada.

Canadian Prime Minister Mark Carney's Liberal Party maintained power in Monday's election but failed to secure the majority needed to bolster his position in trade negotiations with US President Donald Trump. The Liberals were leading in 167 electoral districts, falling short of the 172 seats required for a majority in the 343-seat House of Commons. The opposition Conservatives trailed with 145 seats, according to Reuters, with vote counting still underway.

In his victory speech in Ottawa, Carney remarked, "Our old relationship with the United States, a relationship based on steadily increasing integration, is over. The system of open global trade anchored by the United States--though not perfect, has delivered prosperity for our country for decades, and that system is now over."

The USD/CAD pair is also gaining support as the US Dollar benefits from growing optimism surrounding US-China trade relations. President Trump expressed willingness to roll back tariffs on Chinese goods, while Beijing announced exemptions for select US imports--developments that have raised hopes for a resolution to the prolonged trade dispute between the two economic giants.

Additionally, Trump emphasized continued progress in talks and confirmed ongoing communication with Chinese President Xi Jinping. According to the Wall Street Journal, the US President is also looking to ease the burden of automotive tariffs by reducing overlapping duties on foreign vehicles and cutting tariffs on imported car parts.