USD/CAD steadies near 1.3950 as US Dollar receives support from trade optimism

• USD/CAD strengthens amid optimism over progress in US-China trade talks held over the weekend in Switzerland.
• US Treasury Secretary Bessent characterized the discussions as a positive move toward narrowing the $400 billion trade imbalance.
• The CAD remains under pressure, weighed down by mixed labor market data and evolving expectations regarding the BoC's policy outlook.

USD/CAD is attempting to hold gains for the fourth consecutive session, hovering around 1.3940 during Monday's Asian trading hours. The pair remains supported as the US Dollar (USD) gains strength following reported progress in US-China trade talks over the weekend in Switzerland.

US Treasury Secretary Scott Bessent described the two-day talks in Geneva with Chinese officials as "productive," with additional details expected in a Monday morning briefing. Currently, China is subject to US tariffs of 145%, while Beijing has imposed 125% tariffs on American exports. Commerce Secretary Howard Lutnick noted that the baseline 10% tariff on other countries will likely remain unchanged "for the foreseeable future."

Although recession concerns persist, recent data suggest the US economy is more likely to head toward a slowdown rather than a full contraction. There are also no signs of accelerating inflation, with both CPI and PCE measures declining in March.

However, Federal Reserve (Fed) officials have expressed concerns about potential stagflation. Governor Michael Barr cautioned that increasing tariffs could disrupt supply chains, leading to higher inflation, weaker growth, and rising unemployment. As a result, investor sentiment remains cautious amid the risk of worsening trade tensions.

Meanwhile, the Canadian Dollar (CAD) is under pressure due to mixed labor market data and shifting expectations around the Bank of Canada's (BoC) policy stance. Despite a stronger-than-expected job gain of 7,400 in April, the unemployment rate climbed to 6.9%--the highest since November--highlighting weaknesses in tariff-sensitive sectors like manufacturing.