USD/CAD Slips Below 1.3700 as Risk-On Sentiment Grows After US-EU Trade Pact

The Canadian Dollar gains ground against the US Dollar as investor sentiment improves following major trade developments and Fed rate expectations.

The USD/CAD pair remains under pressure, trading slightly below the 1.3700 level during Monday’s Asian session. The Canadian Dollar continues to strengthen after a two-day decline in the US Dollar, driven by improved global risk appetite following a breakthrough US-EU trade agreement.

On Sunday, the United States and European Union struck a major trade deal covering nearly a third of global trade. The agreement includes a 15% tariff on EU goods entering the US, while Europe committed to increasing its imports of US energy and military goods. Markets viewed the deal as a de-escalation of global trade tensions, helping ease investor concerns and reduce safe-haven demand for the US Dollar.

Sentiment was further boosted by reports that the US and China may extend their tariff truce by another three months. According to the South China Morning Post, officials from both countries are expected to meet in Stockholm on Monday, with US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng set to discuss the path forward.

Meanwhile, all eyes are on the Federal Reserve’s interest rate decision this Wednesday. The Fed is widely expected to maintain its policy rate at 4.25%–4.50%, but the FOMC press conference could offer clues about a potential rate cut in September. As of now, markets are pricing in a 62% chance of a rate cut next month, per CME FedWatch.

In contrast, trade relations between the US and Canada remain strained. President Donald Trump recently downplayed expectations for a deal with Canada, stating, “We haven’t really had a lot of luck with Canada,” and suggesting that tariffs may be imposed without a formal negotiation. Canadian Prime Minister Mark Carney responded that Canada will not rush into a poor agreement, reinforcing the uncertainty.

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