A senior Canadian official announced that U.S. President Donald Trump and Canadian Prime Minister Mark Carney will talk soon. This follows the U.S. decision to impose a 35% tariff on some Canadian goods that the USMCA trade agreement does not cover. Dominic LeBlanc, Canada’s trade minister with the U.S., noted that discussions with U.S. officials, including Commerce Secretary Howard Lutnick and Trade Representative Jamieson Greer, are progressing. However, a deal to lower the tariffs has not been finalized yet.

Hope for an Agreement

LeBlanc is hopeful that a deal can be made to lower tariffs and create more stable investment conditions. The U.S. imposed these tariffs, claiming that Canada has not done enough to stop fentanyl smuggling. Canadian officials argue otherwise, stating Canada accounts for only about 1% of U.S. fentanyl imports and is working to decrease that further. The current tariff is part of ongoing trade disputes that have resurfaced since Trump returned to office. With the new 35% tariff and the upcoming conversation between U.S. and Canadian leaders, we anticipate increased market volatility. The uncertainty around these talks could lead to sharp changes in the Canadian dollar’s value. Any news from their meeting, whether good or bad, is likely to trigger immediate market reactions.

Market Reactions and Strategies

Last week, the Canadian dollar weakened significantly, falling to a 10-month low of $0.71 USD. This decline is notable compared to the $0.74 level in May 2025, before this trade dispute reemerged. In past tariff conflicts during 2018-2019, the loonie also experienced similar volatility against the U.S. dollar. The implied volatility on one-month USD/CAD options has jumped above 11%, indicating trader concerns about the talks’ outcomes. This suggests that the market is expecting greater price movements for this currency pair. We see this volatility as a chance to explore strategies that could profit from these price shifts, regardless of the direction. The impact of these tariffs goes beyond currency, affecting Canadian companies involved in cross-border trade. Sectors like auto parts, specialty lumber, and specific agricultural products are especially vulnerable. According to Statistics Canada, exports to the U.S. in these categories were valued at over C$55 billion in 2024. In light of this, traders are increasingly betting against these assets, with put option volumes on the S&P/TSX 60 Index tracking ETF (XIU) rising nearly 40% in late July 2025. In this situation, we are looking for options to hedge or speculate on potential declines in Canadian assets. This could involve buying put options on major Canadian stock market ETFs or purchasing call options on the USD/CAD pair. If a surprising agreement emerges, trends could change quickly, making it vital to manage positions carefully for possible rebounds. Create your live VT Markets account and start trading now.

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