The Canadian Dollar (CAD) is reemerging from the tariff scare and is now up 1.5% since Friday’s close. There is a residual 1% risk premium embedded into USD/CAD in our estimation, which suggests some additional room on the downside for the pair if tariff risks are entirely priced out, ING's FX analyst Francesco Pesole notes.

Risks remain skewed to the 1.45 handle towards the summer

"That said, we are not sure markets will or should move to a completely optimistic stance on the US-Canada trade spat. Even if the worst-case scenario of 25% duties may be averted (although tariffs are only delayed for 30 days), there are no clear hints Canada could be spared in another round of trade-related, and not border-related – universal tariffs."

"So, if in the short term we can surely see a move to 1.42 in USD/CAD, the risks remain skewed to the 1.45 handle towards the summer."