USD/CAD drifts lower to near 1.4050, potential downside seems limited amid Trump tariff threat

• USD/CAD softens to near 1.4055 in Wednesday’s early Asian session. 
• Trump's tariff threat exerts some selling pressure on the Canadian Dollar. 
• FOMC minutes showed officials backed the gradual pace of rate cuts. 

The USD/CAD pair trades with mild losses around 1.4055 during the early Asian session on Wednesday. The Canadian Dollar (CAD) recovers some lost ground after reaching a 55-month low due to US President-elect Donald Trump vowing tariffs on Mexico and Canada and extra tariffs on China. 

Donald Trump said he would impose a 25% tariff on imports from Canada and Mexico on January 20 and impose an extra 10% tariff on goods from China. The prospect of likely substantial tariffs has prompted traders to become more cautious about the currencies of the United States (US) trading partners, dragging the Loonie lower against the Greenback. 

Goldman Sachs analyst, Isabella Rosenberg, said the proposed 25% tariff on Mexican and Canadian imports would represent a significant economic shock for both the Canadian Dollar and the Mexican Peso.

Minutes from the Federal Open Market Committee's (FOMC) latest meeting indicated that the policymakers are taking a cautious approach to cutting interest rates as inflation is easing and the labor market remains strong.  At the November meeting, the Fed decided to lower interest rates by a quarter-point to a range of 4.5-4.75%, the second cut in as many meetings. The cautious stance from the Fed might boost the Greenback in the near term.

Later on Wednesday, the US Core Personal Consumption Expenditures (Core PCE) - Price Index for October will take center stage. Also, the weekly Initial Jobless Claims, Pending Home Sales, the Chicago PMI and Durable Goods Orders will be released.