USD/CAD depreciates to near 1.3800, CAD gains on early election results

USD/CAD continued to come under pressure for a second trading day, hovering around 1.3820 during Asian trading hours on Tuesday. The pair weakened as the Canadian dollar (CAD) strengthened slightly on initial support from Canada's election results.

Canada's ruling Liberal Party remains in power following Monday's election, although it is not certain they will secure a majority, according to projections from CTV News and CBC. Prime Minister Mark Carney had sought a strong mandate to counter U.S. President Donald Trump's tariff and annexation threats. However, CBC News reported that the Liberals have yet to secure the 172 seats they need in the 343-seat House of Commons to achieve a majority.

Final results may take time to be confirmed, especially those from British Columbia, which could be decisive. Meanwhile, the right-leaning Conservatives performed stronger than expected, arguing for change after more than nine years of Liberal leadership. If Carney ends up leading a minority government, he will need to negotiate with other parties to maintain power - a situation that has historically resulted in Canadian governments typically lasting no more than 2.5 years.

Despite the CAD’s strength, further downside in USD/CAD is likely to be limited by the resilience of the broader U.S. dollar (USD). The dollar found support on signs of easing U.S.-China trade tensions. The protracted trade war between the world's two largest economies may be coming to an end after U.S. President Donald Trump expressed a willingness to withdraw tariffs on China and Beijing announced tariff exemptions for certain U.S. goods.

President Trump noted that progress has been made and that he spoke with Chinese President Xi Jinping. However, a spokesperson for the Chinese embassy strongly denied any ongoing negotiations, saying "there are no consultations or negotiations on tariffs between China and the United States" and urged Washington to stop creating confusion.