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• USD/CAD edges lower to around 1.4240 in Monday’s late American session.
• Goods from Canada that comply with the USMCA trade agreement will remain exempt from Trump’s tariff. 
• Investors are stepping up bets that the Fed will cut interest rates aggressively this year. 

The USD/CAD pair weakens to near 1.4240, snapping the two-day winning streak during the late American session on Monday. The Canadian Dollar (CAD) edged higher against the Greenback as Canada last week avoided new levies on its goods in a widening global trade war triggered by US President Donald Trump.

Last week, Trump announced sweeping new tariffs for dozens of countries, imposing a 10% baseline tariff on all imports to the US and higher targeted duties on some of the country's biggest trading partners. Canada and Mexico were notably spared in this round, except for auto exports and steel and aluminum which fall under separate tariff policies.

This development provides some support to the Loonie against the US dollar (USD). "CAD is outperforming non-USD peers as Canada remains relatively shielded from the new round of tariffs," said Jayati Bharadwaj, a global FX strategist at TD Securities.

Investors raise their bets of more interest rate cuts from the US Federal Reserve (Fed) this year as Trump's tariffs raise US recession fears. The markets are now pricing in nearly 65% odds of a Fed cut in May and futures now point to about 100 basis points  (bps) worth of rate reductions by December this year, according to the CME FedWatch tool. This, in turn, could drag the USD lower against its rivals in the near term. 

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