The U.S. Secretary of Commerce has suggested a 35% tariff on all Canadian goods not included in the USMCA. The deadline for this proposal is August 1, as stated by President Trump. The Secretary noted that things could change, depending on the actions of Canadian Prime Minister Mark Carney.

Deadline Approaches for Tariff Decision

As the August 1 deadline nears, the threat of a 35% tariff on many Canadian goods is causing significant tension. This event could drastically impact the markets. The USD/CAD currency pair is expected to make a big move soon. The stakes are high, as trade in goods not part of the current agreement exceeded $250 billion in 2024, according to the Commerce Department. Market fears are evident, with the CBOE Volatility Index for the S&P/TSX 60 jumping over 30% this week. This uncertainty makes holding unprotected positions risky as the deadline approaches. Traders should consider buying downside protection on Canadian assets as a key strategy. This could involve purchasing put options on the iShares MSCI Canada ETF (EWL) or on particular Canadian exporters in the auto parts and resource sectors. These investments can be beneficial if the tariffs go into effect and Canadian stocks drop.

Strategies for Possible Market Changes

For those who want to take risks, betting on a weaker Canadian dollar through futures or call options on USD/CAD is a straightforward approach based on the tariff news. The Canadian dollar has already fallen to a two-year low around $0.70 USD, but could drop even more if the tariffs are confirmed. Given the high volatility, option straddles, which profit from large price swings in either direction, are also a practical, though costly, strategy. We are seeing a scenario reminiscent of the US-China trade conflicts from 2018 to 2019, where market trends were influenced by ongoing news. A last-minute phone call could lead to a significant recovery, impacting those with bearish positions. On the other hand, if nothing happens by the deadline, expect a sharp downturn. Create your live VT Markets account and start trading now.

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