Trump stated that the new tariffs are being implemented smoothly and is open to more trade talks, even with Canada. This remark came just hours after an executive order raised tariffs on Canadian goods from 25% to 35%, targeting products not covered by the USMCA. Despite the tax increase affecting US-Canada relations, Trump remains willing to negotiate, potentially including discussions with Canadian Prime Minister Mark Carney. This comes as the White House seeks “fairer” trade terms, although there are worries about disruptions to supply chains and economic ties in North America.

Current Market Situation

At present, the USD/CAD exchange rate is relatively steady at 1.3858. The current impasse creates a situation of policy-driven volatility. The market’s calm response, with USD/CAD remaining around 1.3858, indicates that traders are balancing the new tariff hike against the chance of diplomatic talks. Because of this uncertainty, we can expect the implied volatility on USD/CAD options to increase in the upcoming weeks. In light of this, using strategies like straddles or strangles to buy volatility could be wise. These strategies allow traders to benefit from significant price changes in either direction, which could result from successful talks with Prime Minister Justin Trudeau or further disputes. A major price move is more likely than a period of stability.

Historical Context and Current Trends

Historically, we saw a similar situation during the 2018-2019 trade disputes when the US imposed tariffs on Canadian steel and aluminum. During that time, the USD/CAD rose from about 1.29 to over 1.36 over several months amid ongoing uncertainty. History indicates that as long as the tariffs remain, the path forward for the currency pair is likely upward. Recent data supports this viewpoint, as Statistics Canada reported a 0.8% drop in manufacturing exports for June 2025, showing initial signs of economic strain before this latest tariff increase. This makes Canada’s economy especially vulnerable to new trade barriers. Traders who expect a directional move might consider buying USD/CAD call options to gain from potential Canadian dollar weakness while managing downside risk if negotiations are successful. Any news regarding a possible call between the leaders will be a significant market driver. A positive outcome could quickly lower USD/CAD, reversing recent gains. On the other hand, if talks break down, the exchange rate may rise sharply toward the 1.40 level. Create your live VT Markets account and start trading now.

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