Canada has recently reduced trade tensions by removing many tariffs on U.S. imports as part of the USMCA agreement. This change aligns Canada’s tariffs with U.S. exemptions and seeks to revive stalled trade discussions. However, tariffs on U.S. steel, aluminum, and automobiles remain in place, despite earlier concessions like canceling the digital services tax.

Future Currency Outlook

Following this move, Canadian and U.S. officials are expected to hold talks to advance negotiations. In the meantime, the Canadian dollar is losing value against the U.S. dollar, with the USDCAD exchange rate increasing as demand for the dollar rises. Although the U.S. dollar dropped sharply last Friday, today has seen renewed interest in dollar purchases. Technical analysis indicates that the lower prices from Friday and today have stabilized between 1.3813 and 1.3832. The current trading price is 1.3847, remaining above this support zone after holding steady today. Canada’s recent decision to lift some tariffs is promising, but the market isn’t reacting to it for now. The immediate decline of the Canadian dollar, with rising USDCAD, illustrates that traders are focused on broader economic factors. This suggests that positive trade news is being overshadowed by powerful macroeconomic trends. This situation is influenced by differing expectations of central bank policies. Recent U.S. inflation data from July 2025 shows a persistent rate of 3.5%, leading the market to anticipate a more aggressive Federal Reserve. Meanwhile, Canadian inflation has dropped to 2.7%, increasing speculation that the Bank of Canada might lower rates sooner, which could widen the interest rate gap in favor of the U.S. dollar.

Trading Opportunities

The technical outlook supports this perspective, with USDCAD finding strong support in the 1.3813-1.3832 zone last week and today. This reliable support suggests that buyers see dips as chances to invest in the U.S. dollar against the Canadian dollar. Holding above this level strengthens the potential for further gains. For traders of derivatives, this indicates a strategy of positioning for continued USDCAD strength in the upcoming weeks. Buying call options on USDCAD could be a smart way to leverage possible upward movements while managing risk. Options with expiration dates in September or October 2025 would capitalize on this ongoing trend of policy divergence. A similar trend was observed between 2022 and 2023, where the Federal Reserve’s aggressive interest rate hikes dominated economic news, leading to sustained strength of the U.S. dollar. History shows that when central bank policies diverge significantly, it typically becomes the main influence on currency pairs like USDCAD, reinforcing the idea that current trade news is likely to play a secondary role. Create your live VT Markets account and start trading now.

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